“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 decade-long holding period for an investor who was considering Xerox Holdings Corp (NYSE: XRX) back in 2010, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 03/03/2010 |
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| End date: | 03/02/2020 | ||||
| Start price/share: | $25.08 | ||||
| End price/share: | $33.51 | ||||
| Starting shares: | 398.72 | ||||
| Ending shares: | 519.35 | ||||
| Dividends reinvested/share: | $7.20 | ||||
| Total return: | 74.03% | ||||
| Average annual return: | 5.69% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $17,396.85 | ||||
As shown above, the decade-long investment result worked out well, with an annualized rate of return of 5.69%. This would have turned a $10K investment made 10 years ago into $17,396.85 today (as of 03/02/2020). On a total return basis, that’s a result of 74.03% (something to think about: how might XRX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Xerox Holdings Corp paid investors a total of $7.20/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 1/share, we calculate that XRX has a current yield of approximately 2.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $25.08/share purchase price. This works out to a yield on cost of 11.88%.
More investment wisdom to ponder:
“The most important thing about an investment philosophy is that you have one.” — David Booth
