“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a decade-long holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 10 years to 2010, investors considering an investment into shares of KeyCorp (NYSE: KEY) may have been pondering this very question and thinking about their potential investment result over a full decade-long time horizon. Here’s how that would have worked out.
| Start date: | 09/15/2010 |
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| End date: | 09/14/2020 | ||||
| Start price/share: | $8.21 | ||||
| End price/share: | $12.81 | ||||
| Starting shares: | 1,218.03 | ||||
| Ending shares: | 1,569.50 | ||||
| Dividends reinvested/share: | $3.58 | ||||
| Total return: | 101.05% | ||||
| Average annual return: | 7.23% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,106.16 | ||||
As shown above, the decade-long investment result worked out well, with an annualized rate of return of 7.23%. This would have turned a $10K investment made 10 years ago into $20,106.16 today (as of 09/14/2020). On a total return basis, that’s a result of 101.05% (something to think about: how might KEY shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that KeyCorp paid investors a total of $3.58/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 .74/share, we calculate that KEY has a current yield of approximately 5.78%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .74 against the original $8.21/share purchase price. This works out to a yield on cost of 70.40%.
One more investment quote to leave you with:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
