“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a ten year holding period for an investor who was considering Automatic Data Processing Inc. (NASD: ADP) back in 2009, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 07/13/2009 |
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| End date: | 07/10/2019 | ||||
| Start price/share: | $29.95 | ||||
| End price/share: | $164.54 | ||||
| Starting shares: | 333.89 | ||||
| Ending shares: | 431.46 | ||||
| Dividends reinvested/share: | $18.72 | ||||
| Total return: | 609.92% | ||||
| Average annual return: | 21.66% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $70,997.79 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 21.66%. This would have turned a $10K investment made 10 years ago into $70,997.79 today (as of 07/10/2019). On a total return basis, that’s a result of 609.92% (something to think about: how might ADP shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of Automatic Data Processing Inc., investors have received $18.72/share in dividends these past 10 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use closing price on ex-date).
Based upon the most recent annualized dividend rate of 3.16/share, we calculate that ADP has a current yield of approximately 1.92%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.16 against the original $29.95/share purchase price. This works out to a yield on cost of 6.41%.
One more investment quote to leave you with:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham
