“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year 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 5 years to 2017, investors considering an investment into shares of TE Connectivity Ltd (NYSE: TEL) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.
| Start date: | 03/13/2017 |
|
|||
| End date: | 03/10/2022 | ||||
| Start price/share: | $75.14 | ||||
| End price/share: | $130.29 | ||||
| Starting shares: | 133.08 | ||||
| Ending shares: | 145.99 | ||||
| Dividends reinvested/share: | $9.12 | ||||
| Total return: | 90.21% | ||||
| Average annual return: | 13.74% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $19,022.16 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 13.74%. This would have turned a $10K investment made 5 years ago into $19,022.16 today (as of 03/10/2022). On a total return basis, that’s a result of 90.21% (something to think about: how might TEL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that TE Connectivity Ltd paid investors a total of $9.12/share in dividends over the 5 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 2/share, we calculate that TEL has a current yield of approximately 1.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $75.14/share purchase price. This works out to a yield on cost of 2.05%.
One more piece of investment wisdom to leave you with:
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger
