“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 2010, and take a look at what happened to investors who asked that very question about eBay Inc. (NASD: EBAY), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 02/26/2010 |
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| End date: | 02/25/2020 | ||||
| Start price/share: | $9.69 | ||||
| End price/share: | $36.46 | ||||
| Starting shares: | 1,031.99 | ||||
| Ending shares: | 1,047.59 | ||||
| Dividends reinvested/share: | $0.56 | ||||
| Total return: | 281.95% | ||||
| Average annual return: | 14.34% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $38,206.86 | ||||
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 14.34%. This would have turned a $10K investment made 10 years ago into $38,206.86 today (as of 02/25/2020). On a total return basis, that’s a result of 281.95% (something to think about: how might EBAY 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, eBay Inc. has paid $0.56/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 .64/share, we calculate that EBAY has a current yield of approximately 1.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .64 against the original $9.69/share purchase price. This works out to a yield on cost of 18.16%.
Another great investment quote to think about:
“Sentimentality about an investments leads to lack of discipline.” — Sam Zell
