“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 2012, and take a look at what happened to investors who asked that very question about Kroger Co (NYSE: KR), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 06/18/2012 |
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| End date: | 06/15/2022 | ||||
| Start price/share: | $11.41 | ||||
| End price/share: | $50.88 | ||||
| Starting shares: | 876.42 | ||||
| Ending shares: | 1,046.56 | ||||
| Dividends reinvested/share: | $5.13 | ||||
| Total return: | 432.49% | ||||
| Average annual return: | 18.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $53,252.88 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 18.21%. This would have turned a $10K investment made 10 years ago into $53,252.88 today (as of 06/15/2022). On a total return basis, that’s a result of 432.49% (something to think about: how might KR shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Kroger Co paid investors a total of $5.13/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 .84/share, we calculate that KR has a current yield of approximately 1.65%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .84 against the original $11.41/share purchase price. This works out to a yield on cost of 14.46%.
One more investment quote to leave you with:
“If you’re looking for a home run, a great investment for five years or 10 years or more, then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.” — Ralph Wanger
