“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a decade-long holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 10 years to 2011, investors considering an investment into shares of Deere & Co. (NYSE: DE) may have been pondering this very question and thinking about their potential investment result over a full decade-long time horizon. Here’s how that would have worked out.
| Start date: | 06/02/2011 |
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| End date: | 06/01/2021 | ||||
| Start price/share: | $84.23 | ||||
| End price/share: | $364.61 | ||||
| Starting shares: | 118.72 | ||||
| Ending shares: | 148.00 | ||||
| Dividends reinvested/share: | $24.34 | ||||
| Total return: | 439.62% | ||||
| Average annual return: | 18.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $53,961.44 | ||||
As shown above, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 18.35%. This would have turned a $10K investment made 10 years ago into $53,961.44 today (as of 06/01/2021). On a total return basis, that’s a result of 439.62% (something to think about: how might DE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Deere & Co. paid investors a total of $24.34/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 3.6/share, we calculate that DE has a current yield of approximately 0.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.6 against the original $84.23/share purchase price. This works out to a yield on cost of 1.18%.
One more piece of investment wisdom to leave you with:
“You can get in much more trouble with a good idea than a bad idea, because you forget that the good idea has limits.” — Benjamin Graham
