“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 ten year period?
Today, let’s look backwards in time to 2013, and take a look at what happened to investors who asked that very question about Chevron Corporation (NYSE: CVX), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 02/28/2013 |
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| End date: | 02/27/2023 | ||||
| Start price/share: | $117.15 | ||||
| End price/share: | $162.82 | ||||
| Starting shares: | 85.36 | ||||
| Ending shares: | 129.21 | ||||
| Dividends reinvested/share: | $47.00 | ||||
| Total return: | 110.38% | ||||
| Average annual return: | 7.72% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,040.30 | ||||
As shown above, the ten year investment result worked out well, with an annualized rate of return of 7.72%. This would have turned a $10K investment made 10 years ago into $21,040.30 today (as of 02/27/2023). On a total return basis, that’s a result of 110.38% (something to think about: how might CVX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Chevron Corporation paid investors a total of $47.00/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 6.04/share, we calculate that CVX has a current yield of approximately 3.71%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.04 against the original $117.15/share purchase price. This works out to a yield on cost of 3.17%.
More investment wisdom to ponder:
“You’ve got to be careful if you don’t know where you’re going, ’cause you might not get there.” — Yogi Berra
