Photo credit:

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— Warren Buffett

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a ten year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Pinnacle West Capital Corp (NYSE: PNW) back in 2009. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 03/30/2009


End date: 03/28/2019
Start price/share: $26.01
End price/share: $95.08
Starting shares: 384.47
Ending shares: 586.73
Dividends reinvested/share: $23.56
Total return: 457.87%
Average annual return: 18.76%
Starting investment: $10,000.00
Ending investment: $55,808.70

As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 18.76%. This would have turned a $10K investment made 10 years ago into $55,808.70 today (as of 03/28/2019). On a total return basis, that’s a result of 457.87% (something to think about: how might PNW shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Pinnacle West Capital Corp paid investors a total of $23.56/share in dividends over the 10 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 2.95/share, we calculate that PNW has a current yield of approximately 3.10%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.95 against the original $26.01/share purchase price. This works out to a yield on cost of 11.92%.

Another great investment quote to think about:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer