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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

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 Union Pacific Corp (NYSE: UNP) back in 2009, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 08/03/2009
$10,000

08/03/2009
$73,486

07/31/2019
End date: 07/31/2019
Start price/share: $30.10
End price/share: $179.95
Starting shares: 332.23
Ending shares: 408.54
Dividends reinvested/share: $18.28
Total return: 635.17%
Average annual return: 22.08%
Starting investment: $10,000.00
Ending investment: $73,486.54

As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 22.08%. This would have turned a $10K investment made 10 years ago into $73,486.54 today (as of 07/31/2019). On a total return basis, that’s a result of 635.17% (something to think about: how might UNP shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Union Pacific Corp paid investors a total of $18.28/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 3.88/share, we calculate that UNP has a current yield of approximately 2.16%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.88 against the original $30.10/share purchase price. This works out to a yield on cost of 7.18%.

More investment wisdom to ponder:
“Don’t look for the needle in the haystack, just buy the haystack.” — John Bogle