“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a decade-long holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into United Parcel Service Inc (NYSE: UPS) back in 2010: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full decade-long investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
|Average annual return:||12.95%|
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 12.95%. This would have turned a $10K investment made 10 years ago into $33,795.77 today (as of 10/22/2020). On a total return basis, that’s a result of 237.97% (something to think about: how might UPS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of UPS’s total return these past 10 years has been the payment by United Parcel Service Inc of $29.86/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of 4.04/share, we calculate that UPS has a current yield of approximately 2.34%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.04 against the original $69.32/share purchase price. This works out to a yield on cost of 3.38%.
One more piece of investment wisdom to leave you with:
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions.” — Joel Greenblatt