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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

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 ten year holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into PPL Corp (NYSE: PPL) back in 2009: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full ten year investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.

Start date: 09/24/2009
$10,000

09/24/2009
$18,081

09/23/2019
End date: 09/23/2019
Start price/share: $28.44
End price/share: $31.59
Starting shares: 351.62
Ending shares: 572.14
Dividends reinvested/share: $14.48
Total return: 80.74%
Average annual return: 6.10%
Starting investment: $10,000.00
Ending investment: $18,081.08

As shown above, the ten year investment result worked out well, with an annualized rate of return of 6.10%. This would have turned a $10K investment made 10 years ago into $18,081.08 today (as of 09/23/2019). On a total return basis, that’s a result of 80.74% (something to think about: how might PPL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that PPL Corp paid investors a total of $14.48/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 1.65/share, we calculate that PPL has a current yield of approximately 5.22%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.65 against the original $28.44/share purchase price. This works out to a yield on cost of 18.35%.

One more investment quote to leave you with:
“Behind every stock is a company. Find out what it’s doing.” — Peter Lynch