“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 Cardinal Health, Inc. (NYSE: CAH) 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: | 08/31/2009 |
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| End date: | 08/29/2019 | ||||
| Start price/share: | $34.58 | ||||
| End price/share: | $42.27 | ||||
| Starting shares: | 289.18 | ||||
| Ending shares: | 510.45 | ||||
| Dividends reinvested/share: | $23.10 | ||||
| Total return: | 115.77% | ||||
| Average annual return: | 7.99% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,569.27 | ||||
As shown above, the decade-long investment result worked out well, with an annualized rate of return of 7.99%. This would have turned a $10K investment made 10 years ago into $21,569.27 today (as of 08/29/2019). On a total return basis, that’s a result of 115.77% (something to think about: how might CAH shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cardinal Health, Inc. paid investors a total of $23.10/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 1.9244/share, we calculate that CAH has a current yield of approximately 4.55%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.9244 against the original $34.58/share purchase price. This works out to a yield on cost of 13.16%.
Here’s one more great investment quote before you go:
“The stock market is a device to transfer money from the impatient to the patient.” — Warren Buffett
