“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 Microsoft Corporation (NASD: MSFT), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 04/28/2010 |
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| End date: | 04/27/2020 | ||||
| Start price/share: | $30.91 | ||||
| End price/share: | $174.05 | ||||
| Starting shares: | 323.52 | ||||
| Ending shares: | 410.24 | ||||
| Dividends reinvested/share: | $12.52 | ||||
| Total return: | 614.02% | ||||
| Average annual return: | 21.71% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $71,405.25 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 21.71%. This would have turned a $10K investment made 10 years ago into $71,405.25 today (as of 04/27/2020). On a total return basis, that’s a result of 614.02% (something to think about: how might MSFT shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of Microsoft Corporation, investors have received $12.52/share in dividends these past 10 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use closing price on ex-date).
Based upon the most recent annualized dividend rate of 2.04/share, we calculate that MSFT has a current yield of approximately 1.17%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.04 against the original $30.91/share purchase price. This works out to a yield on cost of 3.79%.
One more piece of investment wisdom to leave you with:
“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” — Mark Twain
