“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 Yum! Brands Inc (NYSE: YUM) back in 2011: 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: | 04/21/2011 |
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| End date: | 04/20/2021 | ||||
| Start price/share: | $38.57 | ||||
| End price/share: | $117.96 | ||||
| Starting shares: | 259.27 | ||||
| Ending shares: | 313.20 | ||||
| Dividends reinvested/share: | $12.60 | ||||
| Total return: | 269.45% | ||||
| Average annual return: | 13.95% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $36,936.36 | ||||
As we can see, the ten year investment result worked out quite well, with an annualized rate of return of 13.95%. This would have turned a $10K investment made 10 years ago into $36,936.36 today (as of 04/20/2021). On a total return basis, that’s a result of 269.45% (something to think about: how might YUM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and Yum! Brands Inc has paid $12.60/share in dividends to shareholders over the past 10 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of 2/share, we calculate that YUM has a current yield of approximately 1.70%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $38.57/share purchase price. This works out to a yield on cost of 4.41%.
One more investment quote to leave you with:
“This company looks cheap, that company looks cheap, but the overall economy could completely screw it up. The key is to wait. Sometimes the hardest thing to do is to do nothing.” — David Tepper
