“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 ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into International Business Machines Corp (NYSE: IBM)? Today, we examine the outcome of a ten year investment into the stock back in 2011.
|Average annual return:||1.68%|
As we can see, the ten year investment result worked out as follows, with an annualized rate of return of 1.68%. This would have turned a $10K investment made 10 years ago into $11,812.33 today (as of 12/31/2020). On a total return basis, that’s a result of 18.17% (something to think about: how might IBM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Business Machines Corp paid investors a total of $49.70/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 6.52/share, we calculate that IBM has a current yield of approximately 5.18%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.52 against the original $147.64/share purchase price. This works out to a yield on cost of 3.51%.
Another great investment quote to think about:
“Behind every stock is a company. Find out what it’s doing.” — Peter Lynch