“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 United Parcel Service Inc (NYSE: UPS), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 06/07/2012 |
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| End date: | 06/06/2022 | ||||
| Start price/share: | $75.47 | ||||
| End price/share: | $187.11 | ||||
| Starting shares: | 132.50 | ||||
| Ending shares: | 177.98 | ||||
| Dividends reinvested/share: | $34.30 | ||||
| Total return: | 233.02% | ||||
| Average annual return: | 12.78% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $33,301.52 | ||||
The above analysis shows the ten year investment result worked out quite well, with an annualized rate of return of 12.78%. This would have turned a $10K investment made 10 years ago into $33,301.52 today (as of 06/06/2022). On a total return basis, that’s a result of 233.02% (something to think about: how might UPS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that United Parcel Service Inc paid investors a total of $34.30/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 6.08/share, we calculate that UPS has a current yield of approximately 3.25%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.08 against the original $75.47/share purchase price. This works out to a yield on cost of 4.31%.
Here’s one more great investment quote before you go:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham
