“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 2014, and take a look at what happened to investors who asked that very question about United Rentals Inc (NYSE: URI), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 01/17/2014 |
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| End date: | 01/16/2024 | ||||
| Start price/share: | $81.09 | ||||
| End price/share: | $561.13 | ||||
| Starting shares: | 123.32 | ||||
| Ending shares: | 125.06 | ||||
| Dividends reinvested/share: | $5.92 | ||||
| Total return: | 601.74% | ||||
| Average annual return: | 21.51% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $70,202.41 | ||||
As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 21.51%. This would have turned a $10K investment made 10 years ago into $70,202.41 today (as of 01/16/2024). On a total return basis, that’s a result of 601.74% (something to think about: how might URI shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that United Rentals Inc paid investors a total of $5.92/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 5.92/share, we calculate that URI has a current yield of approximately 1.05%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.92 against the original $81.09/share purchase price. This works out to a yield on cost of 1.29%.
One more investment quote to leave you with:
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffett
