“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 ten year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Cincinnati Financial Corp. (NASD: CINF) back in 2013: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full ten year investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
| Start date: | 11/04/2013 |
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| End date: | 11/02/2023 | ||||
| Start price/share: | $49.91 | ||||
| End price/share: | $99.89 | ||||
| Starting shares: | 200.36 | ||||
| Ending shares: | 269.55 | ||||
| Dividends reinvested/share: | $23.19 | ||||
| Total return: | 169.25% | ||||
| Average annual return: | 10.41% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $26,913.26 | ||||
The above analysis shows the ten year investment result worked out quite well, with an annualized rate of return of 10.41%. This would have turned a $10K investment made 10 years ago into $26,913.26 today (as of 11/02/2023). On a total return basis, that’s a result of 169.25% (something to think about: how might CINF shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cincinnati Financial Corp. paid investors a total of $23.19/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/share, we calculate that CINF has a current yield of approximately 3.00%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3 against the original $49.91/share purchase price. This works out to a yield on cost of 6.01%.
Here’s one more great investment quote before you go:
“Be fearful when others are greedy; be greedy when others are fearful.” — Warren Buffett
