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“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— Warren Buffett

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Target Corp (NYSE: TGT) back in 2009. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 07/02/2009
$10,000

07/02/2009
$30,572

07/01/2019
End date: 07/01/2019
Start price/share: $37.45
End price/share: $86.94
Starting shares: 267.02
Ending shares: 351.55
Dividends reinvested/share: $17.80
Total return: 205.64%
Average annual return: 11.82%
Starting investment: $10,000.00
Ending investment: $30,572.28

As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 11.82%. This would have turned a $10K investment made 10 years ago into $30,572.28 today (as of 07/01/2019). On a total return basis, that’s a result of 205.64% (something to think about: how might TGT shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Target Corp paid investors a total of $17.80/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 2.64/share, we calculate that TGT has a current yield of approximately 3.04%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.64 against the original $37.45/share purchase price. This works out to a yield on cost of 8.12%.

One more investment quote to leave you with:
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” — Warren Buffett