“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 2009, and take a look at what happened to investors who asked that very question about Walmart Inc (NYSE: WMT), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 07/22/2009 |
|
|||
| End date: | 07/19/2019 | ||||
| Start price/share: | $49.17 | ||||
| End price/share: | $113.90 | ||||
| Starting shares: | 203.38 | ||||
| Ending shares: | 260.95 | ||||
| Dividends reinvested/share: | $17.75 | ||||
| Total return: | 197.22% | ||||
| Average annual return: | 11.51% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $29,717.24 | ||||
As we can see, the ten year investment result worked out quite well, with an annualized rate of return of 11.51%. This would have turned a $10K investment made 10 years ago into $29,717.24 today (as of 07/19/2019). On a total return basis, that’s a result of 197.22% (something to think about: how might WMT shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Walmart Inc paid investors a total of $17.75/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 2.12/share, we calculate that WMT has a current yield of approximately 1.86%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.12 against the original $49.17/share purchase price. This works out to a yield on cost of 3.78%.
Here’s one more great investment quote before you go:
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” — Albert Einstein
