“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 decade-long 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 2013, investors considering an investment into shares of T-Mobile US Inc (NASD: TMUS) may have been pondering this very question and thinking about their potential investment result over a full decade-long time horizon. Here’s how that would have worked out.
| Start date: | 02/22/2013 |
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| End date: | 02/21/2023 | ||||
| Start price/share: | $19.90 | ||||
| End price/share: | $147.09 | ||||
| Starting shares: | 502.51 | ||||
| Ending shares: | 626.01 | ||||
| Dividends reinvested/share: | $4.06 | ||||
| Total return: | 820.80% | ||||
| Average annual return: | 24.85% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $92,076.66 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 24.85%. This would have turned a $10K investment made 10 years ago into $92,076.66 today (as of 02/21/2023). On a total return basis, that’s a result of 820.80% (something to think about: how might TMUS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that T-Mobile US Inc paid investors a total of $4.06/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 .6875/share, we calculate that TMUS has a current yield of approximately 0.47%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .6875 against the original $19.90/share purchase price. This works out to a yield on cost of 2.36%.
Another great investment quote to think about:
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” — George Soros
