“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a ten year holding period for an investor who was considering Allstate Corp (NYSE: ALL) back in 2014, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 04/01/2014 |
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| End date: | 03/28/2024 | ||||
| Start price/share: | $56.49 | ||||
| End price/share: | $173.01 | ||||
| Starting shares: | 177.02 | ||||
| Ending shares: | 219.95 | ||||
| Dividends reinvested/share: | $21.96 | ||||
| Total return: | 280.53% | ||||
| Average annual return: | 14.30% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $38,045.50 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 14.30%. This would have turned a $10K investment made 10 years ago into $38,045.50 today (as of 03/28/2024). On a total return basis, that’s a result of 280.53% (something to think about: how might ALL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Allstate Corp paid investors a total of $21.96/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 3.68/share, we calculate that ALL has a current yield of approximately 2.13%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.68 against the original $56.49/share purchase price. This works out to a yield on cost of 3.77%.
One more investment quote to leave you with:
“The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.” — Benjamin Graham
