“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 Home Depot Inc (NYSE: HD) back in 2001, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 10/15/2001 |
|
|||
| End date: | 10/12/2021 | ||||
| Start price/share: | $40.96 | ||||
| End price/share: | $337.80 | ||||
| Starting shares: | 244.14 | ||||
| Ending shares: | 374.72 | ||||
| Dividends reinvested/share: | $40.44 | ||||
| Total return: | 1,165.80% | ||||
| Average annual return: | 13.53% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $126,623.62 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 13.53%. This would have turned a $10K investment made 20 years ago into $126,623.62 today (as of 10/12/2021). On a total return basis, that’s a result of 1,165.80% (something to think about: how might HD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Home Depot Inc paid investors a total of $40.44/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 6.6/share, we calculate that HD has a current yield of approximately 1.95%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.6 against the original $40.96/share purchase price. This works out to a yield on cost of 4.76%.
Another great investment quote to think about:
“Don’t look for the needle in the haystack, just buy the haystack.” — John Bogle
