Photo credit: commons.wikimedia.org

“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 decade-long 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 Intercontinental Exchange Inc (NYSE: ICE), by taking a look at the investment outcome over a decade-long holding period.

Start date: 06/04/2009
$10,000

06/04/2009
$36,923

06/03/2019
End date: 06/03/2019
Start price/share: $23.95
End price/share: $82.52
Starting shares: 417.54
Ending shares: 447.57
Dividends reinvested/share: $3.95
Total return: 269.33%
Average annual return: 13.95%
Starting investment: $10,000.00
Ending investment: $36,923.14

As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 13.95%. This would have turned a $10K investment made 10 years ago into $36,923.14 today (as of 06/03/2019). On a total return basis, that’s a result of 269.33% (something to think about: how might ICE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Intercontinental Exchange Inc paid investors a total of $3.95/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 1.1/share, we calculate that ICE has a current yield of approximately 1.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.1 against the original $23.95/share purchase price. This works out to a yield on cost of 5.55%.

Another great investment quote to think about:
“Generally, the greater the stigma or revulsion, the better the bargain.” — Seth Klarman