“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 Masco Corp. (NYSE: MAS), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 09/10/2010 |
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| End date: | 09/09/2020 | ||||
| Start price/share: | $9.60 | ||||
| End price/share: | $57.95 | ||||
| Starting shares: | 1,041.67 | ||||
| Ending shares: | 1,220.22 | ||||
| Dividends reinvested/share: | $3.61 | ||||
| Total return: | 607.12% | ||||
| Average annual return: | 21.59% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $70,703.97 | ||||
The above analysis shows the ten year investment result worked out exceptionally well, with an annualized rate of return of 21.59%. This would have turned a $10K investment made 10 years ago into $70,703.97 today (as of 09/09/2020). On a total return basis, that’s a result of 607.12% (something to think about: how might MAS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Masco Corp. paid investors a total of $3.61/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 .54/share, we calculate that MAS has a current yield of approximately 0.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .54 against the original $9.60/share purchase price. This works out to a yield on cost of 9.69%.
More investment wisdom to ponder:
“Sometimes buying early on the way down looks like being wrong, but it isn’t.” — Seth Klarman
