“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 Vulcan Materials Co (NYSE: VMC), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 08/25/2010 |
|
|||
| End date: | 08/24/2020 | ||||
| Start price/share: | $37.60 | ||||
| End price/share: | $124.67 | ||||
| Starting shares: | 265.96 | ||||
| Ending shares: | 287.84 | ||||
| Dividends reinvested/share: | $6.89 | ||||
| Total return: | 258.85% | ||||
| Average annual return: | 13.62% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $35,879.94 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 13.62%. This would have turned a $10K investment made 10 years ago into $35,879.94 today (as of 08/24/2020). On a total return basis, that’s a result of 258.85% (something to think about: how might VMC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Vulcan Materials Co paid investors a total of $6.89/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 1.36/share, we calculate that VMC has a current yield of approximately 1.09%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.36 against the original $37.60/share purchase price. This works out to a yield on cost of 2.90%.
Here’s one more great investment quote before you go:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
