“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a ten year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 10 years to 2010, investors considering an investment into shares of Verizon Communications Inc (NYSE: VZ) may have been pondering this very question and thinking about their potential investment result over a full ten year time horizon. Here’s how that would have worked out.
| Start date: | 06/18/2010 |
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| End date: | 06/17/2020 | ||||
| Start price/share: | $27.32 | ||||
| End price/share: | $56.65 | ||||
| Starting shares: | 366.03 | ||||
| Ending shares: | 585.38 | ||||
| Dividends reinvested/share: | $22.00 | ||||
| Total return: | 231.62% | ||||
| Average annual return: | 12.73% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $33,165.02 | ||||
As we can see, the ten year investment result worked out quite well, with an annualized rate of return of 12.73%. This would have turned a $10K investment made 10 years ago into $33,165.02 today (as of 06/17/2020). On a total return basis, that’s a result of 231.62% (something to think about: how might VZ shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 10 years, Verizon Communications Inc has paid $22.00/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 2.46/share, we calculate that VZ has a current yield of approximately 4.34%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.46 against the original $27.32/share purchase price. This works out to a yield on cost of 15.89%.
One more piece of investment wisdom to leave you with:
“Don’t look for the needle in the haystack, just buy the haystack.” — John Bogle
