“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering Teradyne, Inc. (NASD: TER) back in 2000, bought the stock, ignored the market’s ups and downs, and simply held through to today.
|Average annual return:||6.49%|
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 6.49%. This would have turned a $10K investment made 20 years ago into $35,182.46 today (as of 12/11/2020). On a total return basis, that’s a result of 251.50% (something to think about: how might TER shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and Teradyne, Inc. has paid $2.06/share in dividends to shareholders over the past 20 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of .4/share, we calculate that TER has a current yield of approximately 0.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .4 against the original $34.94/share purchase price. This works out to a yield on cost of 1.00%.
One more piece of investment wisdom to leave you with:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett