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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 Verizon Communications Inc (NYSE: VZ) 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: 09/09/2011


End date: 09/08/2021
Start price/share: $35.24
End price/share: $54.91
Starting shares: 283.77
Ending shares: 446.28
Dividends reinvested/share: $22.70
Total return: 145.05%
Average annual return: 9.37%
Starting investment: $10,000.00
Ending investment: $24,501.65

As shown above, the ten year investment result worked out well, with an annualized rate of return of 9.37%. This would have turned a $10K investment made 10 years ago into $24,501.65 today (as of 09/08/2021). On a total return basis, that’s a result of 145.05% (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 $22.70/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 2.56/share, we calculate that VZ has a current yield of approximately 4.66%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.56 against the original $35.24/share purchase price. This works out to a yield on cost of 13.22%.

Here’s one more great investment quote before you go:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks