“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— 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 decade-long holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Federal Realty Investment Trust (NYSE: FRT) back in 2009: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full decade-long investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
| Start date: | 05/07/2009 |
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| End date: | 05/06/2019 | ||||
| Start price/share: | $53.80 | ||||
| End price/share: | $132.82 | ||||
| Starting shares: | 185.87 | ||||
| Ending shares: | 252.56 | ||||
| Dividends reinvested/share: | $32.99 | ||||
| Total return: | 235.45% | ||||
| Average annual return: | 12.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $33,538.56 | ||||
As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 12.86%. This would have turned a $10K investment made 10 years ago into $33,538.56 today (as of 05/06/2019). On a total return basis, that’s a result of 235.45% (something to think about: how might FRT shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 10 years, Federal Realty Investment Trust has paid $32.99/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 4.08/share, we calculate that FRT has a current yield of approximately 3.07%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.08 against the original $53.80/share purchase price. This works out to a yield on cost of 5.71%.
One more investment quote to leave you with:
“Value investing means really asking what are the best values, and not assuming that because something looks expensive that it is, or assuming that because a stock is down in price and trades at low multiples that it is a bargain.” — Bill Miller
