“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— 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 ten year period?
Today, let’s look backwards in time to 2009, and take a look at what happened to investors who asked that very question about Avery Dennison Corp (NYSE: AVY), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 04/17/2009 |
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| End date: | 04/16/2019 | ||||
| Start price/share: | $27.84 | ||||
| End price/share: | $116.37 | ||||
| Starting shares: | 359.20 | ||||
| Ending shares: | 465.13 | ||||
| Dividends reinvested/share: | $13.52 | ||||
| Total return: | 441.28% | ||||
| Average annual return: | 18.39% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $54,119.16 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 18.39%. This would have turned a $10K investment made 10 years ago into $54,119.16 today (as of 04/16/2019). On a total return basis, that’s a result of 441.28% (something to think about: how might AVY shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Avery Dennison Corp paid investors a total of $13.52/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 2.08/share, we calculate that AVY has a current yield of approximately 1.79%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.08 against the original $27.84/share purchase price. This works out to a yield on cost of 6.43%.
Another great investment quote to think about:
“Money is better than poverty, if only for financial reasons.” — Woody Allen
