“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 decade-long period?
Today, let’s look backwards in time to 2011, and take a look at what happened to investors who asked that very question about Costco Wholesale Corp (NASD: COST), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 03/03/2011 |
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| End date: | 03/02/2021 | ||||
| Start price/share: | $72.49 | ||||
| End price/share: | $328.46 | ||||
| Starting shares: | 137.95 | ||||
| Ending shares: | 181.37 | ||||
| Dividends reinvested/share: | $46.80 | ||||
| Total return: | 495.72% | ||||
| Average annual return: | 19.53% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $59,592.79 | ||||
As shown above, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 19.53%. This would have turned a $10K investment made 10 years ago into $59,592.79 today (as of 03/02/2021). On a total return basis, that’s a result of 495.72% (something to think about: how might COST shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Costco Wholesale Corp paid investors a total of $46.80/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 2.8/share, we calculate that COST has a current yield of approximately 0.85%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.8 against the original $72.49/share purchase price. This works out to a yield on cost of 1.17%.
One more investment quote to leave you with:
“Those who do not remember the past are condemned to repeat it.” — George Santayana
