“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 ten year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Eastman Chemical Co (NYSE: EMN) back in 2009: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full ten year investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
| Start date: | 06/18/2009 |
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| End date: | 06/17/2019 | ||||
| Start price/share: | $19.06 | ||||
| End price/share: | $72.07 | ||||
| Starting shares: | 524.66 | ||||
| Ending shares: | 664.57 | ||||
| Dividends reinvested/share: | $15.28 | ||||
| Total return: | 378.95% | ||||
| Average annual return: | 16.95% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $47,883.80 | ||||
As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 16.95%. This would have turned a $10K investment made 10 years ago into $47,883.80 today (as of 06/17/2019). On a total return basis, that’s a result of 378.95% (something to think about: how might EMN shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Eastman Chemical Co paid investors a total of $15.28/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 2.48/share, we calculate that EMN has a current yield of approximately 3.44%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $19.06/share purchase price. This works out to a yield on cost of 18.05%.
More investment wisdom to ponder:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham
