“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Lennar Corp (NYSE: LEN) back in 1999: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 11/01/1999 |
|
|||
| End date: | 10/31/2019 | ||||
| Start price/share: | $8.20 | ||||
| End price/share: | $59.60 | ||||
| Starting shares: | 1,219.51 | ||||
| Ending shares: | 1,570.32 | ||||
| Dividends reinvested/share: | $7.38 | ||||
| Total return: | 835.91% | ||||
| Average annual return: | 11.83% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $93,662.47 | ||||
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 11.83%. This would have turned a $10K investment made 20 years ago into $93,662.47 today (as of 10/31/2019). On a total return basis, that’s a result of 835.91% (something to think about: how might LEN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lennar Corp paid investors a total of $7.38/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 .16/share, we calculate that LEN has a current yield of approximately 0.27%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .16 against the original $8.20/share purchase price. This works out to a yield on cost of 3.29%.
Another great investment quote to think about:
“You can get in much more trouble with a good idea than a bad idea, because you forget that the good idea has limits.” — Benjamin Graham
