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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 decade-long holding period for an investor who was considering Western Union Co (NYSE: WU) back in 2009, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 09/08/2009
$10,000

09/08/2009
$16,473

09/05/2019
End date: 09/05/2019
Start price/share: $18.20
End price/share: $22.60
Starting shares: 549.45
Ending shares: 728.73
Dividends reinvested/share: $5.17
Total return: 64.69%
Average annual return: 5.12%
Starting investment: $10,000.00
Ending investment: $16,473.81

As shown above, the decade-long investment result worked out well, with an annualized rate of return of 5.12%. This would have turned a $10K investment made 10 years ago into $16,473.81 today (as of 09/05/2019). On a total return basis, that’s a result of 64.69% (something to think about: how might WU shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Western Union Co paid investors a total of $5.17/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 .8/share, we calculate that WU has a current yield of approximately 3.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .8 against the original $18.20/share purchase price. This works out to a yield on cost of 19.45%.

Another great investment quote to think about:
“Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.” — Peter Lynch