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“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— Warren Buffett

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Duke Energy Corp (NYSE: DUK) back in 2010. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 08/26/2010


End date: 08/25/2020
Start price/share: $51.24
End price/share: $80.85
Starting shares: 195.16
Ending shares: 305.67
Dividends reinvested/share: $33.30
Total return: 147.13%
Average annual return: 9.46%
Starting investment: $10,000.00
Ending investment: $24,704.13

The above analysis shows the decade-long investment result worked out well, with an annualized rate of return of 9.46%. This would have turned a $10K investment made 10 years ago into $24,704.13 today (as of 08/25/2020). On a total return basis, that’s a result of 147.13% (something to think about: how might DUK shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Duke Energy Corp paid investors a total of $33.30/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 3.86/share, we calculate that DUK has a current yield of approximately 4.77%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.86 against the original $51.24/share purchase price. This works out to a yield on cost of 9.31%.

One more piece of investment wisdom to leave you with:
“All the opportunity in the world means nothing if you don’t actually pull the trigger.” — Sam Zell