“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Prudential Financial Inc (NYSE: PRU)? Today, we examine the outcome of a decade-long investment into the stock back in 2010.
| Start date: | 04/28/2010 |
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| End date: | 04/27/2020 | ||||
| Start price/share: | $62.77 | ||||
| End price/share: | $59.26 | ||||
| Starting shares: | 159.31 | ||||
| Ending shares: | 218.69 | ||||
| Dividends reinvested/share: | $25.04 | ||||
| Total return: | 29.60% | ||||
| Average annual return: | 2.62% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,953.34 | ||||
As shown above, the decade-long investment result worked out as follows, with an annualized rate of return of 2.62%. This would have turned a $10K investment made 10 years ago into $12,953.34 today (as of 04/27/2020). On a total return basis, that’s a result of 29.60% (something to think about: how might PRU shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Prudential Financial Inc paid investors a total of $25.04/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 4.4/share, we calculate that PRU has a current yield of approximately 7.42%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.4 against the original $62.77/share purchase price. This works out to a yield on cost of 11.82%.
One more piece of investment wisdom to leave you with:
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” — Warren Buffett
