“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a ten year holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in Prudential Financial Inc (NYSE: PRU) back in 2009, holding through to today.
| Start date: | 06/15/2009 |
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| End date: | 06/12/2019 | ||||
| Start price/share: | $36.60 | ||||
| End price/share: | $98.76 | ||||
| Starting shares: | 273.22 | ||||
| Ending shares: | 367.74 | ||||
| Dividends reinvested/share: | $22.64 | ||||
| Total return: | 263.18% | ||||
| Average annual return: | 13.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $36,318.18 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 13.77%. This would have turned a $10K investment made 10 years ago into $36,318.18 today (as of 06/12/2019). On a total return basis, that’s a result of 263.18% (something to think about: how might PRU shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of PRU’s total return these past 10 years has been the payment by Prudential Financial Inc of $22.64/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of 4/share, we calculate that PRU has a current yield of approximately 4.05%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4 against the original $36.60/share purchase price. This works out to a yield on cost of 11.07%.
Another great investment quote to think about:
“Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks just as well, if not better, than the average Wall Street expert.” — Peter Lynch
