“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a ten year period?
Today, let’s look backwards in time to 2009, and take a look at what happened to investors who asked that very question about Colgate-Palmolive Co. (NYSE: CL), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 09/28/2009 |
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| End date: | 09/25/2019 | ||||
| Start price/share: | $38.19 | ||||
| End price/share: | $72.24 | ||||
| Starting shares: | 261.85 | ||||
| Ending shares: | 331.31 | ||||
| Dividends reinvested/share: | $13.92 | ||||
| Total return: | 139.34% | ||||
| Average annual return: | 9.12% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,929.84 | ||||
The above analysis shows the ten year investment result worked out well, with an annualized rate of return of 9.12%. This would have turned a $10K investment made 10 years ago into $23,929.84 today (as of 09/25/2019). On a total return basis, that’s a result of 139.34% (something to think about: how might CL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Colgate-Palmolive Co. paid investors a total of $13.92/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 1.72/share, we calculate that CL has a current yield of approximately 2.38%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.72 against the original $38.19/share purchase price. This works out to a yield on cost of 6.23%.
Here’s one more great investment quote before you go:
“If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong.” — Bernard Baruch
