“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 Hershey Company (NYSE: HSY), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 06/30/2011 |
|
|||
| End date: | 06/29/2021 | ||||
| Start price/share: | $56.85 | ||||
| End price/share: | $172.00 | ||||
| Starting shares: | 175.90 | ||||
| Ending shares: | 221.25 | ||||
| Dividends reinvested/share: | $23.79 | ||||
| Total return: | 280.55% | ||||
| Average annual return: | 14.29% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $38,053.99 | ||||
The above analysis shows the ten year investment result worked out quite well, with an annualized rate of return of 14.29%. This would have turned a $10K investment made 10 years ago into $38,053.99 today (as of 06/29/2021). On a total return basis, that’s a result of 280.55% (something to think about: how might HSY shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Hershey Company paid investors a total of $23.79/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 3.216/share, we calculate that HSY has a current yield of approximately 1.87%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.216 against the original $56.85/share purchase price. This works out to a yield on cost of 3.29%.
Here’s one more great investment quote before you go:
“Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world.” — Charlie Munger
