“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 Wells Fargo & Co (NYSE: WFC)? Today, we examine the outcome of a decade-long investment into the stock back in 2010.
| Start date: | 05/13/2010 |
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| End date: | 05/12/2020 | ||||
| Start price/share: | $33.08 | ||||
| End price/share: | $24.04 | ||||
| Starting shares: | 302.30 | ||||
| Ending shares: | 403.38 | ||||
| Dividends reinvested/share: | $13.07 | ||||
| Total return: | -3.03% | ||||
| Average annual return: | -0.31% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,694.12 | ||||
As we can see, the decade-long investment result worked out poorly, with an annualized rate of return of -0.31%. This would have turned a $10K investment made 10 years ago into $9,694.12 today (as of 05/12/2020). On a total return basis, that’s a result of -3.03% (something to think about: how might WFC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Wells Fargo & Co paid investors a total of $13.07/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 2.04/share, we calculate that WFC has a current yield of approximately 8.49%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.04 against the original $33.08/share purchase price. This works out to a yield on cost of 25.67%.
Here’s one more great investment quote before you go:
“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” — Charlie Munger
