“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— 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 decade-long holding period for an investor who was considering Medtronic PLC (NYSE: MDT) back in 2011, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 05/31/2011 |
|
|||
| End date: | 05/27/2021 | ||||
| Start price/share: | $40.70 | ||||
| End price/share: | $125.15 | ||||
| Starting shares: | 245.70 | ||||
| Ending shares: | 303.94 | ||||
| Dividends reinvested/share: | $15.41 | ||||
| Total return: | 280.38% | ||||
| Average annual return: | 14.30% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $38,045.50 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 14.30%. This would have turned a $10K investment made 10 years ago into $38,045.50 today (as of 05/27/2021). On a total return basis, that’s a result of 280.38% (something to think about: how might MDT shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Medtronic PLC paid investors a total of $15.41/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 2.32/share, we calculate that MDT has a current yield of approximately 1.85%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.32 against the original $40.70/share purchase price. This works out to a yield on cost of 4.55%.
More investment wisdom to ponder:
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” — Charlie Munger
