“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Phillips 66 (NYSE: PSX)? Today, we examine the outcome of a ten year investment into the stock back in 2014.
| Start date: | 06/24/2014 |
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| End date: | 06/21/2024 | ||||
| Start price/share: | $84.94 | ||||
| End price/share: | $138.09 | ||||
| Starting shares: | 117.73 | ||||
| Ending shares: | 168.91 | ||||
| Dividends reinvested/share: | $32.41 | ||||
| Total return: | 133.25% | ||||
| Average annual return: | 8.84% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,328.42 | ||||
As we can see, the ten year investment result worked out well, with an annualized rate of return of 8.84%. This would have turned a $10K investment made 10 years ago into $23,328.42 today (as of 06/21/2024). On a total return basis, that’s a result of 133.25% (something to think about: how might PSX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Phillips 66 paid investors a total of $32.41/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 4.6/share, we calculate that PSX has a current yield of approximately 3.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.6 against the original $84.94/share purchase price. This works out to a yield on cost of 3.92%.
One more investment quote to leave you with:
“A risk-reward ratio is important, but so is an aggravation-satisfaction ratio.” — Muriel Siebert
