“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a ten year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 10 years to 2012, investors considering an investment into shares of ConocoPhillips (NYSE: COP) may have been pondering this very question and thinking about their potential investment result over a full ten year time horizon. Here’s how that would have worked out.
| Start date: | 09/17/2012 |
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| End date: | 09/15/2022 | ||||
| Start price/share: | $58.30 | ||||
| End price/share: | $115.56 | ||||
| Starting shares: | 171.53 | ||||
| Ending shares: | 237.71 | ||||
| Dividends reinvested/share: | $19.72 | ||||
| Total return: | 174.69% | ||||
| Average annual return: | 10.63% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,461.81 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 10.63%. This would have turned a $10K investment made 10 years ago into $27,461.81 today (as of 09/15/2022). On a total return basis, that’s a result of 174.69% (something to think about: how might COP shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that ConocoPhillips paid investors a total of $19.72/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 1.84/share, we calculate that COP has a current yield of approximately 1.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.84 against the original $58.30/share purchase price. This works out to a yield on cost of 2.73%.
One more investment quote to leave you with:
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” — Seth Klarman
