“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a decade-long period?
Today, let’s look backwards in time to 2009, and take a look at what happened to investors who asked that very question about Colgate-Palmolive Co. (NYSE: CL), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 06/05/2009 |
|
|||
| End date: | 06/04/2019 | ||||
| Start price/share: | $35.45 | ||||
| End price/share: | $70.82 | ||||
| Starting shares: | 282.09 | ||||
| Ending shares: | 356.98 | ||||
| Dividends reinvested/share: | $13.71 | ||||
| Total return: | 152.81% | ||||
| Average annual return: | 9.72% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,291.14 | ||||
The above analysis shows the decade-long investment result worked out well, with an annualized rate of return of 9.72%. This would have turned a $10K investment made 10 years ago into $25,291.14 today (as of 06/04/2019). On a total return basis, that’s a result of 152.81% (something to think about: how might CL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Colgate-Palmolive Co. paid investors a total of $13.71/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 1.72/share, we calculate that CL has a current yield of approximately 2.43%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.72 against the original $35.45/share purchase price. This works out to a yield on cost of 6.85%.
Another great investment quote to think about:
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” — George Soros
