“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 decade-long period?
Today, let’s look backwards in time to 2011, 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 decade-long holding period.
| Start date: | 06/09/2011 |
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| End date: | 06/08/2021 | ||||
| Start price/share: | $33.69 | ||||
| End price/share: | $75.70 | ||||
| Starting shares: | 296.82 | ||||
| Ending shares: | 368.96 | ||||
| Dividends reinvested/share: | $13.55 | ||||
| Total return: | 179.31% | ||||
| Average annual return: | 10.81% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,927.61 | ||||
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 10.81%. This would have turned a $10K investment made 10 years ago into $27,927.61 today (as of 06/08/2021). On a total return basis, that’s a result of 179.31% (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 2.64%. 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 $33.69/share purchase price. This works out to a yield on cost of 7.84%.
Here’s one more great investment quote before you go:
“There is nothing riskier than the widespread perception that there is no risk.” — Howard Marks
