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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 Estee Lauder Cos., Inc. (NYSE: EL) 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: 05/31/2011


End date: 05/27/2021
Start price/share: $51.26
End price/share: $303.55
Starting shares: 195.08
Ending shares: 219.07
Dividends reinvested/share: $12.37
Total return: 564.97%
Average annual return: 20.87%
Starting investment: $10,000.00
Ending investment: $66,521.14

As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 20.87%. This would have turned a $10K investment made 10 years ago into $66,521.14 today (as of 05/27/2021). On a total return basis, that’s a result of 564.97% (something to think about: how might EL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Estee Lauder Cos., Inc. paid investors a total of $12.37/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 2.12/share, we calculate that EL has a current yield of approximately 0.70%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.12 against the original $51.26/share purchase price. This works out to a yield on cost of 1.37%.

More investment wisdom to ponder:
“Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.” — Peter Lynch