“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 decade-long 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 Clorox Co (NYSE: CLX), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 11/04/2009 |
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| End date: | 11/01/2019 | ||||
| Start price/share: | $58.84 | ||||
| End price/share: | $147.04 | ||||
| Starting shares: | 169.95 | ||||
| Ending shares: | 228.21 | ||||
| Dividends reinvested/share: | $29.68 | ||||
| Total return: | 235.56% | ||||
| Average annual return: | 12.88% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $33,564.62 | ||||
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 12.88%. This would have turned a $10K investment made 10 years ago into $33,564.62 today (as of 11/01/2019). On a total return basis, that’s a result of 235.56% (something to think about: how might CLX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Clorox Co paid investors a total of $29.68/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 4.24/share, we calculate that CLX has a current yield of approximately 2.88%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.24 against the original $58.84/share purchase price. This works out to a yield on cost of 4.89%.
More investment wisdom to ponder:
“I’d like to live as a poor man with lots of money.” — Pablo Picasso
