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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 Celanese Corp (NYSE: CE) 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: 09/28/2009
$10,000

09/28/2009
$55,574

09/26/2019
End date: 09/26/2019
Start price/share: $25.13
End price/share: $121.59
Starting shares: 397.93
Ending shares: 456.99
Dividends reinvested/share: $10.29
Total return: 455.66%
Average annual return: 18.71%
Starting investment: $10,000.00
Ending investment: $55,574.18

As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 18.71%. This would have turned a $10K investment made 10 years ago into $55,574.18 today (as of 09/26/2019). On a total return basis, that’s a result of 455.66% (something to think about: how might CE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Celanese Corp paid investors a total of $10.29/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 2.48/share, we calculate that CE has a current yield of approximately 2.04%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $25.13/share purchase price. This works out to a yield on cost of 8.12%.

Here’s one more great investment quote before you go:
“Behind every stock is a company. Find out what it’s doing.” — Peter Lynch