“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 decade-long period?
Today, let’s look backwards in time to 2012, and take a look at what happened to investors who asked that very question about Genuine Parts Co. (NYSE: GPC), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 05/24/2012 |
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| End date: | 05/23/2022 | ||||
| Start price/share: | $61.96 | ||||
| End price/share: | $129.64 | ||||
| Starting shares: | 161.39 | ||||
| Ending shares: | 215.56 | ||||
| Dividends reinvested/share: | $26.97 | ||||
| Total return: | 179.46% | ||||
| Average annual return: | 10.82% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,944.97 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 10.82%. This would have turned a $10K investment made 10 years ago into $27,944.97 today (as of 05/23/2022). On a total return basis, that’s a result of 179.46% (something to think about: how might GPC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Genuine Parts Co. paid investors a total of $26.97/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 3.58/share, we calculate that GPC has a current yield of approximately 2.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.58 against the original $61.96/share purchase price. This works out to a yield on cost of 4.45%.
One more piece of investment wisdom to leave you with:
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.” — Peter Lynch
