“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 Sysco Corp (NYSE: SYY) back in 2013: 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.
| Start date: | 06/05/2013 |
|
|||
| End date: | 06/02/2023 | ||||
| Start price/share: | $33.35 | ||||
| End price/share: | $72.64 | ||||
| Starting shares: | 299.85 | ||||
| Ending shares: | 392.26 | ||||
| Dividends reinvested/share: | $15.02 | ||||
| Total return: | 184.94% | ||||
| Average annual return: | 11.04% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,488.52 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 11.04%. This would have turned a $10K investment made 10 years ago into $28,488.52 today (as of 06/02/2023). On a total return basis, that’s a result of 184.94% (something to think about: how might SYY shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Sysco Corp paid investors a total of $15.02/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 2/share, we calculate that SYY has a current yield of approximately 2.75%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $33.35/share purchase price. This works out to a yield on cost of 8.25%.
More investment wisdom to ponder:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
