“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 decade-long period?
Today, let’s look backwards in time to 2013, and take a look at what happened to investors who asked that very question about Union Pacific Corp (NYSE: UNP), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 12/11/2013 |
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| End date: | 12/08/2023 | ||||
| Start price/share: | $80.35 | ||||
| End price/share: | $229.77 | ||||
| Starting shares: | 124.46 | ||||
| Ending shares: | 154.91 | ||||
| Dividends reinvested/share: | $34.05 | ||||
| Total return: | 255.93% | ||||
| Average annual return: | 13.54% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $35,590.80 | ||||
As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 13.54%. This would have turned a $10K investment made 10 years ago into $35,590.80 today (as of 12/08/2023). On a total return basis, that’s a result of 255.93% (something to think about: how might UNP shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Union Pacific Corp paid investors a total of $34.05/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 5.2/share, we calculate that UNP 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 5.2 against the original $80.35/share purchase price. This works out to a yield on cost of 2.81%.
Another great investment quote to think about:
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” — Benjamin Graham
