“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 Lam Research Corp (NASD: LRCX), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 04/22/2009 |
|
|||
| End date: | 04/18/2019 | ||||
| Start price/share: | $25.80 | ||||
| End price/share: | $194.77 | ||||
| Starting shares: | 387.60 | ||||
| Ending shares: | 418.59 | ||||
| Dividends reinvested/share: | $9.72 | ||||
| Total return: | 715.29% | ||||
| Average annual return: | 23.36% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $81,516.22 | ||||
As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 23.36%. This would have turned a $10K investment made 10 years ago into $81,516.22 today (as of 04/18/2019). On a total return basis, that’s a result of 715.29% (something to think about: how might LRCX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lam Research Corp paid investors a total of $9.72/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 4.4/share, we calculate that LRCX has a current yield of approximately 2.26%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.4 against the original $25.80/share purchase price. This works out to a yield on cost of 8.76%.
One more investment quote to leave you with:
“The stock market is filled with individuals who know the price of everything, but the value of nothing.” — Phillip Fisher
