“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 Wynn Resorts Ltd (NASD: WYNN), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 02/25/2010 |
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| End date: | 02/24/2020 | ||||
| Start price/share: | $62.80 | ||||
| End price/share: | $120.17 | ||||
| Starting shares: | 159.24 | ||||
| Ending shares: | 240.97 | ||||
| Dividends reinvested/share: | $51.25 | ||||
| Total return: | 189.57% | ||||
| Average annual return: | 11.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,944.42 | ||||
The above analysis shows the ten year investment result worked out quite well, with an annualized rate of return of 11.21%. This would have turned a $10K investment made 10 years ago into $28,944.42 today (as of 02/24/2020). On a total return basis, that’s a result of 189.57% (something to think about: how might WYNN shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Wynn Resorts Ltd paid investors a total of $51.25/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 4/share, we calculate that WYNN has a current yield of approximately 3.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4 against the original $62.80/share purchase price. This works out to a yield on cost of 5.30%.
More investment wisdom to ponder:
“In the long run, we are all dead.” — John Maynard Keynes
