“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 ten year 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 Everest Re Group Ltd (NYSE: RE), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 11/25/2009 |
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| End date: | 11/22/2019 | ||||
| Start price/share: | $86.73 | ||||
| End price/share: | $267.23 | ||||
| Starting shares: | 115.30 | ||||
| Ending shares: | 142.24 | ||||
| Dividends reinvested/share: | $33.48 | ||||
| Total return: | 280.11% | ||||
| Average annual return: | 14.29% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $38,012.23 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 14.29%. This would have turned a $10K investment made 10 years ago into $38,012.23 today (as of 11/22/2019). On a total return basis, that’s a result of 280.11% (something to think about: how might RE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Everest Re Group Ltd paid investors a total of $33.48/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 6.2/share, we calculate that RE has a current yield of approximately 2.32%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.2 against the original $86.73/share purchase price. This works out to a yield on cost of 2.67%.
More investment wisdom to ponder:
“History provides a crucial insight regarding market crises: they are inevitable, painful and ultimately surmountable.” — Shelby Davis
