“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 Thermo Fisher Scientific Inc (NYSE: TMO), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 03/19/2010 |
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| End date: | 03/18/2020 | ||||
| Start price/share: | $49.88 | ||||
| End price/share: | $302.98 | ||||
| Starting shares: | 200.48 | ||||
| Ending shares: | 208.57 | ||||
| Dividends reinvested/share: | $5.20 | ||||
| Total return: | 531.93% | ||||
| Average annual return: | 20.23% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $63,178.15 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 20.23%. This would have turned a $10K investment made 10 years ago into $63,178.15 today (as of 03/18/2020). On a total return basis, that’s a result of 531.93% (something to think about: how might TMO shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Thermo Fisher Scientific Inc paid investors a total of $5.20/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 .88/share, we calculate that TMO has a current yield of approximately 0.30%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .88 against the original $49.88/share purchase price. This works out to a yield on cost of 0.60%.
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
