“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 decade-long holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Pfizer Inc (NYSE: PFE) back in 2012: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full decade-long investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
|Average annual return:||13.48%|
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 13.48%. This would have turned a $10K investment made 10 years ago into $35,415.49 today (as of 06/09/2022). On a total return basis, that’s a result of 254.23% (something to think about: how might PFE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Pfizer Inc paid investors a total of $12.19/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 1.6/share, we calculate that PFE has a current yield of approximately 3.09%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $20.97/share purchase price. This works out to a yield on cost of 14.74%.
More investment wisdom to ponder:
“Ensure management’s interests are aligned with shareholders.” — Sam Zell