“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a ten year holding period for an investor who was considering Analog Devices Inc (NASD: ADI) back in 2010, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 02/01/2010 |
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| End date: | 01/29/2020 | ||||
| Start price/share: | $27.52 | ||||
| End price/share: | $113.23 | ||||
| Starting shares: | 363.37 | ||||
| Ending shares: | 470.83 | ||||
| Dividends reinvested/share: | $15.03 | ||||
| Total return: | 433.12% | ||||
| Average annual return: | 18.22% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $53,297.94 | ||||
As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 18.22%. This would have turned a $10K investment made 10 years ago into $53,297.94 today (as of 01/29/2020). On a total return basis, that’s a result of 433.12% (something to think about: how might ADI shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 10 years, Analog Devices Inc has paid $15.03/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 2.16/share, we calculate that ADI has a current yield of approximately 1.91%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.16 against the original $27.52/share purchase price. This works out to a yield on cost of 6.94%.
Here’s one more great investment quote before you go:
“A 10% decline in the market is fairly common, it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefitting from the wealthbuilding power of stocks.” — Christopher Davis
