“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 M & T Bank Corp (NYSE: MTB) 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: | 07/20/2009 |
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| End date: | 07/18/2019 | ||||
| Start price/share: | $57.11 | ||||
| End price/share: | $162.76 | ||||
| Starting shares: | 175.10 | ||||
| Ending shares: | 229.39 | ||||
| Dividends reinvested/share: | $29.55 | ||||
| Total return: | 273.36% | ||||
| Average annual return: | 14.08% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $37,333.19 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 14.08%. This would have turned a $10K investment made 10 years ago into $37,333.19 today (as of 07/18/2019). On a total return basis, that’s a result of 273.36% (something to think about: how might MTB shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that M & T Bank Corp paid investors a total of $29.55/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 4/share, we calculate that MTB has a current yield of approximately 2.46%. 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 $57.11/share purchase price. This works out to a yield on cost of 4.31%.
Another great investment quote to think about:
“The most important thing about an investment philosophy is that you have one.” — David Booth
