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“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
$10,000

03/04/2014
  $20,841

03/01/2024
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