“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.
|Average annual return:||21.59%|
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