“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 Honeywell International Inc (NASD: HON), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 09/24/2012 |
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| End date: | 09/22/2022 | ||||
| Start price/share: | $57.33 | ||||
| End price/share: | $173.25 | ||||
| Starting shares: | 174.43 | ||||
| Ending shares: | 214.46 | ||||
| Dividends reinvested/share: | $27.45 | ||||
| Total return: | 271.55% | ||||
| Average annual return: | 14.03% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $37,169.89 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 14.03%. This would have turned a $10K investment made 10 years ago into $37,169.89 today (as of 09/22/2022). On a total return basis, that’s a result of 271.55% (something to think about: how might HON shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Honeywell International Inc paid investors a total of $27.45/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 3.92/share, we calculate that HON has a current yield of approximately 2.26%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.92 against the original $57.33/share purchase price. This works out to a yield on cost of 3.94%.
Here’s one more great investment quote before you go:
“The person who starts simply with the idea of getting rich won’t succeed; you must have a larger ambition.” — John Rockefeller
