“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Xerox Holdings Corp (NYSE: XRX)? Today, we examine the outcome of a decade-long investment into the stock back in 2010.
| Start date: | 04/05/2010 |
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| End date: | 04/02/2020 | ||||
| Start price/share: | $27.36 | ||||
| End price/share: | $18.48 | ||||
| Starting shares: | 365.50 | ||||
| Ending shares: | 473.97 | ||||
| Dividends reinvested/share: | $7.08 | ||||
| Total return: | -12.41% | ||||
| Average annual return: | -1.32% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,755.71 | ||||
The above analysis shows the decade-long investment result worked out poorly, with an annualized rate of return of -1.32%. This would have turned a $10K investment made 10 years ago into $8,755.71 today (as of 04/02/2020). On a total return basis, that’s a result of -12.41% (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 $7.08/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 5.41%. 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 $27.36/share purchase price. This works out to a yield on cost of 19.77%.
Another great investment quote to think about:
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” — Seth Klarman
