“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 ResMed Inc. (NYSE: RMD), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 08/31/2009 |
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| End date: | 08/29/2019 | ||||
| Start price/share: | $22.96 | ||||
| End price/share: | $138.38 | ||||
| Starting shares: | 435.54 | ||||
| Ending shares: | 496.55 | ||||
| Dividends reinvested/share: | $8.59 | ||||
| Total return: | 587.13% | ||||
| Average annual return: | 21.26% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $68,734.64 | ||||
As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 21.26%. This would have turned a $10K investment made 10 years ago into $68,734.64 today (as of 08/29/2019). On a total return basis, that’s a result of 587.13% (something to think about: how might RMD shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that ResMed Inc. paid investors a total of $8.59/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 1.56/share, we calculate that RMD has a current yield of approximately 1.13%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.56 against the original $22.96/share purchase price. This works out to a yield on cost of 4.92%.
One more investment quote to leave you with:
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert Allen
