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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 decade-long holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into Citigroup Inc (NYSE: C) back in 2011: 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.

Start date: 05/18/2011


End date: 05/17/2021
Start price/share: $41.24
End price/share: $77.42
Starting shares: 242.48
Ending shares: 277.91
Dividends reinvested/share: $8.21
Total return: 115.15%
Average annual return: 7.96%
Starting investment: $10,000.00
Ending investment: $21,518.45

As we can see, the decade-long investment result worked out well, with an annualized rate of return of 7.96%. This would have turned a $10K investment made 10 years ago into $21,518.45 today (as of 05/17/2021). On a total return basis, that’s a result of 115.15% (something to think about: how might C shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Citigroup Inc paid investors a total of $8.21/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 2.04/share, we calculate that C has a current yield of approximately 2.63%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.04 against the original $41.24/share purchase price. This works out to a yield on cost of 6.38%.

Here’s one more great investment quote before you go:
“Buy not on optimism, but on arithmetic.” — Benjamin Graham