“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a twenty year period?
Today, let’s look backwards in time to 2002, and take a look at what happened to investors who asked that very question about Darden Restaurants, Inc. (NYSE: DRI), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 05/28/2002 |
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| End date: | 05/24/2022 | ||||
| Start price/share: | $21.94 | ||||
| End price/share: | $114.77 | ||||
| Starting shares: | 455.79 | ||||
| Ending shares: | 735.26 | ||||
| Dividends reinvested/share: | $29.77 | ||||
| Total return: | 743.85% | ||||
| Average annual return: | 11.25% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $84,358.19 | ||||
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 11.25%. This would have turned a $10K investment made 20 years ago into $84,358.19 today (as of 05/24/2022). On a total return basis, that’s a result of 743.85% (something to think about: how might DRI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Darden Restaurants, Inc. paid investors a total of $29.77/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 4.4/share, we calculate that DRI has a current yield of approximately 3.83%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.4 against the original $21.94/share purchase price. This works out to a yield on cost of 17.46%.
Another great investment quote to think about:
“I rarely think the market is right. I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it.” — Mark Cuban
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