
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering General Dynamics Corp (NYSE: GD) back in 2005, bought the stock, ignored the market’s ups and downs, and simply held through to today.
Start date: | 01/20/2005 |
|
|||
End date: | 01/17/2025 | ||||
Start price/share: | $50.45 | ||||
End price/share: | $266.67 | ||||
Starting shares: | 198.22 | ||||
Ending shares: | 307.12 | ||||
Dividends reinvested/share: | $58.24 | ||||
Total return: | 719.01% | ||||
Average annual return: | 11.08% | ||||
Starting investment: | $10,000.00 | ||||
Ending investment: | $81,840.35 |
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 11.08%. This would have turned a $10K investment made 20 years ago into $81,840.35 today (as of 01/17/2025). On a total return basis, that’s a result of 719.01% (something to think about: how might GD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that General Dynamics Corp paid investors a total of $58.24/share in dividends over the 20 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of 5.68/share, we calculate that GD has a current yield of approximately 2.13%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.68 against the original $50.45/share purchase price. This works out to a yield on cost of 4.22%.
Here’s one more great investment quote before you go:
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” — George Soros