“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 two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Cintas Corporation (NASD: CTAS) back in 2003: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 11/10/2003 |
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| End date: | 11/09/2023 | ||||
| Start price/share: | $44.12 | ||||
| End price/share: | $526.33 | ||||
| Starting shares: | 226.65 | ||||
| Ending shares: | 296.49 | ||||
| Dividends reinvested/share: | $30.26 | ||||
| Total return: | 1,460.52% | ||||
| Average annual return: | 14.72% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $156,112.02 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 14.72%. This would have turned a $10K investment made 20 years ago into $156,112.02 today (as of 11/09/2023). On a total return basis, that’s a result of 1,460.52% (something to think about: how might CTAS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cintas Corporation paid investors a total of $30.26/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 5.4/share, we calculate that CTAS has a current yield of approximately 1.03%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.4 against the original $44.12/share purchase price. This works out to a yield on cost of 2.33%.
Here’s one more great investment quote before you go:
“If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.” — Warren Buffett
