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“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
$10,000

04/05/2010
$8,755

04/02/2020
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