“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 PulteGroup Inc (NYSE: PHM) 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: | 11/23/2009 |
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| End date: | 11/21/2019 | ||||
| Start price/share: | $9.56 | ||||
| End price/share: | $38.98 | ||||
| Starting shares: | 1,046.03 | ||||
| Ending shares: | 1,149.34 | ||||
| Dividends reinvested/share: | $2.14 | ||||
| Total return: | 348.01% | ||||
| Average annual return: | 16.18% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $44,803.68 | ||||
As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 16.18%. This would have turned a $10K investment made 10 years ago into $44,803.68 today (as of 11/21/2019). On a total return basis, that’s a result of 348.01% (something to think about: how might PHM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PulteGroup Inc paid investors a total of $2.14/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 .44/share, we calculate that PHM has a current yield of approximately 1.13%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .44 against the original $9.56/share purchase price. This works out to a yield on cost of 11.82%.
Another great investment quote to think about:
“Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.” — Peter Lynch
