“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 Bank of New York Mellon Corp (NYSE: BK), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 08/10/2010 |
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| End date: | 08/07/2020 | ||||
| Start price/share: | $25.44 | ||||
| End price/share: | $37.75 | ||||
| Starting shares: | 393.08 | ||||
| Ending shares: | 478.63 | ||||
| Dividends reinvested/share: | $7.61 | ||||
| Total return: | 80.68% | ||||
| Average annual return: | 6.09% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $18,061.11 | ||||
As shown above, the ten year investment result worked out well, with an annualized rate of return of 6.09%. This would have turned a $10K investment made 10 years ago into $18,061.11 today (as of 08/07/2020). On a total return basis, that’s a result of 80.68% (something to think about: how might BK shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Bank of New York Mellon Corp paid investors a total of $7.61/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 1.24/share, we calculate that BK has a current yield of approximately 3.28%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.24 against the original $25.44/share purchase price. This works out to a yield on cost of 12.89%.
One more piece of investment wisdom to leave you with:
“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
