“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 ten year 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 ten year investment into the stock back in 2010.
| Start date: | 06/03/2010 |
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| End date: | 06/02/2020 | ||||
| Start price/share: | $59.31 | ||||
| End price/share: | $60.96 | ||||
| Starting shares: | 168.61 | ||||
| Ending shares: | 235.97 | ||||
| Dividends reinvested/share: | $26.14 | ||||
| Total return: | 43.85% | ||||
| Average annual return: | 3.70% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,383.81 | ||||
As shown above, the ten year investment result worked out as follows, with an annualized rate of return of 3.70%. This would have turned a $10K investment made 10 years ago into $14,383.81 today (as of 06/02/2020). On a total return basis, that’s a result of 43.85% (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 $26.14/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 4.4/share, we calculate that PRU has a current yield of approximately 7.22%. 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 $59.31/share purchase price. This works out to a yield on cost of 12.17%.
More investment wisdom to ponder:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
