“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?
A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Kroger Co (NYSE: KR) back in 2013. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 07/08/2013 |
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| End date: | 07/06/2023 | ||||
| Start price/share: | $18.10 | ||||
| End price/share: | $47.29 | ||||
| Starting shares: | 552.49 | ||||
| Ending shares: | 660.70 | ||||
| Dividends reinvested/share: | $5.88 | ||||
| Total return: | 212.45% | ||||
| Average annual return: | 12.07% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $31,253.14 | ||||
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 12.07%. This would have turned a $10K investment made 10 years ago into $31,253.14 today (as of 07/06/2023). On a total return basis, that’s a result of 212.45% (something to think about: how might KR shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Kroger Co paid investors a total of $5.88/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 1.16/share, we calculate that KR has a current yield of approximately 2.45%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.16 against the original $18.10/share purchase price. This works out to a yield on cost of 13.54%.
Here’s one more great investment quote before you go:
“Cash is a fact, profit is an opinion.” — Alfred Rappaport
