“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 ten year 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 Verizon Communications Inc (NYSE: VZ), by taking a look at the investment outcome over a ten year holding period.
|Average annual return:||8.97%|
As shown above, the ten year investment result worked out well, with an annualized rate of return of 8.97%. This would have turned a $10K investment made 10 years ago into $23,619.68 today (as of 06/29/2021). On a total return basis, that’s a result of 136.28% (something to think about: how might VZ shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Verizon Communications Inc paid investors a total of $22.56/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 2.51/share, we calculate that VZ has a current yield of approximately 4.50%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.51 against the original $37.23/share purchase price. This works out to a yield on cost of 12.09%.
One more investment quote to leave you with:
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” — George Soros