“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 Mondelez International Inc (NASD: MDLZ) back in 2014: 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: | 03/28/2014 |
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| End date: | 03/27/2024 | ||||
| Start price/share: | $34.40 | ||||
| End price/share: | $70.10 | ||||
| Starting shares: | 290.70 | ||||
| Ending shares: | 356.37 | ||||
| Dividends reinvested/share: | $10.72 | ||||
| Total return: | 149.82% | ||||
| Average annual return: | 9.58% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $24,976.45 | ||||
As we can see, the decade-long investment result worked out well, with an annualized rate of return of 9.58%. This would have turned a $10K investment made 10 years ago into $24,976.45 today (as of 03/27/2024). On a total return basis, that’s a result of 149.82% (something to think about: how might MDLZ shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Mondelez International Inc paid investors a total of $10.72/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 1.7/share, we calculate that MDLZ has a current yield of approximately 2.43%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.7 against the original $34.40/share purchase price. This works out to a yield on cost of 7.06%.
Another great investment quote to think about:
“Taking risks is really the only way to consistently achieve above-average returns.” — Sam Zell
