“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a ten year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 10 years to 2009, investors considering an investment into shares of AT&T Inc (NYSE: T) may have been pondering this very question and thinking about their potential investment result over a full ten year time horizon. Here’s how that would have worked out.
| Start date: | 10/12/2009 |
|
|||
| End date: | 10/09/2019 | ||||
| Start price/share: | $25.60 | ||||
| End price/share: | $37.05 | ||||
| Starting shares: | 390.62 | ||||
| Ending shares: | 677.30 | ||||
| Dividends reinvested/share: | $18.60 | ||||
| Total return: | 150.94% | ||||
| Average annual return: | 9.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,094.63 | ||||
As shown above, the ten year investment result worked out well, with an annualized rate of return of 9.64%. This would have turned a $10K investment made 10 years ago into $25,094.63 today (as of 10/09/2019). On a total return basis, that’s a result of 150.94% (something to think about: how might T shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AT&T Inc paid investors a total of $18.60/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 2.04/share, we calculate that T has a current yield of approximately 5.51%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.04 against the original $25.60/share purchase price. This works out to a yield on cost of 21.52%.
One more piece of investment wisdom to leave you with:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
