“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a ten year period?
Today, let’s look backwards in time to 2010, and take a look at what happened to investors who asked that very question about Clorox Co (NYSE: CLX), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 08/23/2010 |
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| End date: | 08/20/2020 | ||||
| Start price/share: | $64.30 | ||||
| End price/share: | $228.30 | ||||
| Starting shares: | 155.52 | ||||
| Ending shares: | 207.31 | ||||
| Dividends reinvested/share: | $31.36 | ||||
| Total return: | 373.30% | ||||
| Average annual return: | 16.82% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $47,333.87 | ||||
The above analysis shows the ten year investment result worked out exceptionally well, with an annualized rate of return of 16.82%. This would have turned a $10K investment made 10 years ago into $47,333.87 today (as of 08/20/2020). On a total return basis, that’s a result of 373.30% (something to think about: how might CLX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Clorox Co paid investors a total of $31.36/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 4.44/share, we calculate that CLX has a current yield of approximately 1.94%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.44 against the original $64.30/share purchase price. This works out to a yield on cost of 3.02%.
Here’s one more great investment quote before you go:
“The investor’s chief problem, even his worst enemy, is likely to be himself.” — Benjamin Graham
