“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 decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Microchip Technology Inc (NASD: MCHP)? Today, we examine the outcome of a decade-long investment into the stock back in 2009.
| Start date: | 04/17/2009 |
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| End date: | 04/16/2019 | ||||
| Start price/share: | $23.11 | ||||
| End price/share: | $97.77 | ||||
| Starting shares: | 432.71 | ||||
| Ending shares: | 604.45 | ||||
| Dividends reinvested/share: | $14.15 | ||||
| Total return: | 490.97% | ||||
| Average annual return: | 19.44% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $59,116.58 | ||||
As shown above, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 19.44%. This would have turned a $10K investment made 10 years ago into $59,116.58 today (as of 04/16/2019). On a total return basis, that’s a result of 490.97% (something to think about: how might MCHP shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Microchip Technology Inc paid investors a total of $14.15/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 1.46/share, we calculate that MCHP has a current yield of approximately 1.49%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.46 against the original $23.11/share purchase price. This works out to a yield on cost of 6.45%.
More investment wisdom to ponder:
“Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.” — Peter Lynch
