“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 Merck & Co Inc (NYSE: MRK) back in 2010, bought the stock, ignored the market’s ups and downs, and simply held through to today.
|Average annual return:||11.59%|
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 11.59%. This would have turned a $10K investment made 10 years ago into $29,940.07 today (as of 07/09/2020). On a total return basis, that’s a result of 199.40% (something to think about: how might MRK shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Merck & Co Inc paid investors a total of $18.53/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 2.44/share, we calculate that MRK has a current yield of approximately 3.18%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.44 against the original $36.09/share purchase price. This works out to a yield on cost of 8.81%.
Here’s one more great investment quote before you go:
“The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” — William O’Neil