“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 Chevron Corporation (NYSE: CVX), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 09/08/2009 |
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| End date: | 09/04/2019 | ||||
| Start price/share: | $70.48 | ||||
| End price/share: | $117.25 | ||||
| Starting shares: | 141.88 | ||||
| Ending shares: | 205.69 | ||||
| Dividends reinvested/share: | $39.17 | ||||
| Total return: | 141.18% | ||||
| Average annual return: | 9.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $24,122.06 | ||||
The above analysis shows the ten year investment result worked out well, with an annualized rate of return of 9.21%. This would have turned a $10K investment made 10 years ago into $24,122.06 today (as of 09/04/2019). On a total return basis, that’s a result of 141.18% (something to think about: how might CVX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Chevron Corporation paid investors a total of $39.17/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 4.76/share, we calculate that CVX has a current yield of approximately 4.06%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.76 against the original $70.48/share purchase price. This works out to a yield on cost of 5.76%.
More investment wisdom to ponder:
“Money is better than poverty, if only for financial reasons.” — Woody Allen
