“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 Western Digital Corp (NASD: WDC), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 12/31/2010 |
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| End date: | 12/30/2020 | ||||
| Start price/share: | $33.90 | ||||
| End price/share: | $49.53 | ||||
| Starting shares: | 294.99 | ||||
| Ending shares: | 366.68 | ||||
| Dividends reinvested/share: | $13.55 | ||||
| Total return: | 81.62% | ||||
| Average annual return: | 6.15% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $18,169.46 | ||||
The above analysis shows the ten year investment result worked out well, with an annualized rate of return of 6.15%. This would have turned a $10K investment made 10 years ago into $18,169.46 today (as of 12/30/2020). On a total return basis, that’s a result of 81.62% (something to think about: how might WDC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Western Digital Corp paid investors a total of $13.55/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 2/share, we calculate that WDC has a current yield of approximately 4.04%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $33.90/share purchase price. This works out to a yield on cost of 11.92%.
More investment wisdom to ponder:
“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” — William Feather
