How to Calculate Multiple Year Holding Period Returns With Dividends
Some assets appreciate in value over time, including collectibles and stocks. That appreciation is known as a return, and a holding return is the total amount you earned by holding an asset over a specific period of time. To calculate multiple holding period returns with dividends, you simply subtract the original value from the current value, then take that total and divide it by the original value. You can also calculate holding period return in Excel, which is useful if you’re calculating multiple holding periods and you want to regularly update the information.
Holding Period Return Formula
Before investing in a stock, you generally want to know what your likely return on that investment is. Unfortunately, there are no guarantees, but it can help to look at an asset’s long-term performance to determine if it’s a good idea.
To figure out the asset’s total return for the period, subtract the original value from the current value, then divide that total by the original value. This will give you the total investment return for that time period. It is expressed as a percentage. The formula is:
Total holding period return = Current value – Original value / Original value.
If you know your dividends during the holding period, you’ll modify the formula. Simply subtract the original value from the current value, then divide that total by the original value, then add the dividends you earned. This will give you the holding period return. If you have multiple assets, you can apply these formulas to each of them and compare one to another.
Calculating Multiple Holding Periods
When you’re monitoring multiple assets, this can get a little more complicated. It’s probably easiest to calculate holding period return in Excel by building formulas for each of the assets you’re comparing. As factors change over time, you can simply plug in the new numbers.
In addition to being able to calculate holding period return in Excel, you can also use an online calculator to arrive at these numbers. You’ll simply plug in the beginning value of the investment, the ending value of the investment and the income, including dividends, you received from the investment. Log each total, and you’ll be able to compare earnings for various periods.
Return Coupon Bond
You can also use the holding period return formula to calculate the holding period for return coupon bonds. You’ll get a fixed amount of income every year from bonds, which is known as the coupon rate. This actually makes it easier to determine the holding period returns for bonds since they’re the same every year.
The formula used to calculate holding period return coupon bond is similar to the one for other assets. You’ll subtract the purchase price of the bond from the selling price, then add that total to the total coupon payments. Divide that by the purchase price to arrive at your holding period return yield of bonds. The formula is:
HPRY = ((Selling Price−Purchase Price)+Total Coupon Payments)/Purchase Price
You can also use Excel to calculate the holding period return coupon bond.
Expected Versus Total Holding Period
When you’re applying the holding period return formula, you may not be trying to determine how one asset performed versus another. You may, instead, be interested in determining whether a stock is worth the investment.
When you’re calculating expected return, you can apply the same data, but you won’t have the facts yet. If you can apply the formula to a stock’s past performance, you’ll be able to possibly estimate how it will perform in the future. Plug the numbers into the holding period return formula for the expected holding period return.
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- A multiple-year holding period return differs from an annual rate of return, which measures the return an investment earns each year of a holding period. Comparing a multiple-year holding period return with an annual return might result in an inaccurate assessment of an investment’s performance.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.