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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

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 ten year holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into CF Industries Holdings Inc (NYSE: CF) back in 2010: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full ten year investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.

Start date: 12/30/2010


End date: 12/29/2020
Start price/share: $27.33
End price/share: $36.95
Starting shares: 365.90
Ending shares: 466.11
Dividends reinvested/share: $9.16
Total return: 72.23%
Average annual return: 5.58%
Starting investment: $10,000.00
Ending investment: $17,216.54

The above analysis shows the ten year investment result worked out well, with an annualized rate of return of 5.58%. This would have turned a $10K investment made 10 years ago into $17,216.54 today (as of 12/29/2020). On a total return basis, that’s a result of 72.23% (something to think about: how might CF shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that CF Industries Holdings Inc paid investors a total of $9.16/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 1.2/share, we calculate that CF has a current yield of approximately 3.25%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.2 against the original $27.33/share purchase price. This works out to a yield on cost of 11.89%.

Here’s one more great investment quote before you go:
“The older I get, the more I see a straight path where I want to go. If you’re going to hunt elephants, don’t get off the trail for a rabbit.” — T. Boone Pickens