Photo credit: commons.wikimedia.org

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— Warren Buffett

One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a ten year holding period for an investor who was considering Celanese Corp (NYSE: CE) back in 2010, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 04/20/2010
$10,000

04/20/2010
$26,896

04/17/2020
End date: 04/17/2020
Start price/share: $33.61
End price/share: $78.16
Starting shares: 297.53
Ending shares: 343.97
Dividends reinvested/share: $11.41
Total return: 168.85%
Average annual return: 10.40%
Starting investment: $10,000.00
Ending investment: $26,896.19

The above analysis shows the ten year investment result worked out quite well, with an annualized rate of return of 10.40%. This would have turned a $10K investment made 10 years ago into $26,896.19 today (as of 04/17/2020). On a total return basis, that’s a result of 168.85% (something to think about: how might CE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Celanese Corp paid investors a total of $11.41/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 2.48/share, we calculate that CE has a current yield of approximately 3.17%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $33.61/share purchase price. This works out to a yield on cost of 9.43%.

Here’s one more great investment quote before you go:
“The person who starts simply with the idea of getting rich won’t succeed; you must have a larger ambition.” — John Rockefeller