“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 United Parcel Service Inc (NYSE: UPS) back in 2014: 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: | 03/04/2014 |
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| End date: | 03/01/2024 | ||||
| Start price/share: | $96.98 | ||||
| End price/share: | $148.06 | ||||
| Starting shares: | 103.11 | ||||
| Ending shares: | 140.74 | ||||
| Dividends reinvested/share: | $41.16 | ||||
| Total return: | 108.38% | ||||
| Average annual return: | 7.62% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,841.54 | ||||
The above analysis shows the ten year investment result worked out well, with an annualized rate of return of 7.62%. This would have turned a $10K investment made 10 years ago into $20,841.54 today (as of 03/01/2024). On a total return basis, that’s a result of 108.38% (something to think about: how might UPS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that United Parcel Service Inc paid investors a total of $41.16/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 6.52/share, we calculate that UPS has a current yield of approximately 4.40%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.52 against the original $96.98/share purchase price. This works out to a yield on cost of 4.54%.
One more piece of investment wisdom to leave you with:
“The stock market is a device to transfer money from the impatient to the patient.” — Warren Buffett
