“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 2010, and take a look at what happened to investors who asked that very question about Leidos Holdings Inc (NYSE: LDOS), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 01/11/2010 |
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| End date: | 01/09/2020 | ||||
| Start price/share: | $46.94 | ||||
| End price/share: | $101.08 | ||||
| Starting shares: | 213.04 | ||||
| Ending shares: | 388.96 | ||||
| Dividends reinvested/share: | $26.57 | ||||
| Total return: | 293.16% | ||||
| Average annual return: | 14.67% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $39,309.55 | ||||
As we can see, the ten year investment result worked out quite well, with an annualized rate of return of 14.67%. This would have turned a $10K investment made 10 years ago into $39,309.55 today (as of 01/09/2020). On a total return basis, that’s a result of 293.16% (something to think about: how might LDOS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Leidos Holdings Inc paid investors a total of $26.57/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 1.36/share, we calculate that LDOS has a current yield of approximately 1.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.36 against the original $46.94/share purchase price. This works out to a yield on cost of 2.88%.
Here’s one more great investment quote before you go:
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” — Peter Lynch
