“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a decade-long holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 10 years to 2009, investors considering an investment into shares of Cabot Oil & Gas Corp. (NYSE: COG) may have been pondering this very question and thinking about their potential investment result over a full decade-long time horizon. Here’s how that would have worked out.
| Start date: | 06/25/2009 |
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| End date: | 06/24/2019 | ||||
| Start price/share: | $7.69 | ||||
| End price/share: | $23.23 | ||||
| Starting shares: | 1,300.39 | ||||
| Ending shares: | 1,357.40 | ||||
| Dividends reinvested/share: | $1.00 | ||||
| Total return: | 215.32% | ||||
| Average annual return: | 12.17% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $31,543.06 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 12.17%. This would have turned a $10K investment made 10 years ago into $31,543.06 today (as of 06/24/2019). On a total return basis, that’s a result of 215.32% (something to think about: how might COG shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cabot Oil & Gas Corp. paid investors a total of $1.00/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 .36/share, we calculate that COG has a current yield of approximately 1.55%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .36 against the original $7.69/share purchase price. This works out to a yield on cost of 20.16%.
Here’s one more great investment quote before you go:
“The function of economic forecasting is to make astrology look respectable.” — John Galbraith
