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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 Essex Property Trust Inc (NYSE: ESS) 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: 10/28/2009
$10,000

10/28/2009
$58,029

10/25/2019
End date: 10/25/2019
Start price/share: $75.46
End price/share: $325.09
Starting shares: 132.52
Ending shares: 178.43
Dividends reinvested/share: $54.91
Total return: 480.05%
Average annual return: 19.23%
Starting investment: $10,000.00
Ending investment: $58,029.14

As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 19.23%. This would have turned a $10K investment made 10 years ago into $58,029.14 today (as of 10/25/2019). On a total return basis, that’s a result of 480.05% (something to think about: how might ESS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Essex Property Trust Inc paid investors a total of $54.91/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 7.8/share, we calculate that ESS has a current yield of approximately 2.40%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 7.8 against the original $75.46/share purchase price. This works out to a yield on cost of 3.18%.

Another great investment quote to think about:
“In investing, what is comfortable is rarely profitable.” — Robert Arnott