“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 decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Lumen Technologies Inc (NYSE: LUMN)? Today, we examine the outcome of a decade-long investment into the stock back in 2011.
| Start date: | 06/07/2011 |
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| End date: | 06/04/2021 | ||||
| Start price/share: | $40.34 | ||||
| End price/share: | $14.75 | ||||
| Starting shares: | 247.89 | ||||
| Ending shares: | 563.03 | ||||
| Dividends reinvested/share: | $19.81 | ||||
| Total return: | -16.95% | ||||
| Average annual return: | -1.84% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,305.11 | ||||
As we can see, the decade-long investment result worked out poorly, with an annualized rate of return of -1.84%. This would have turned a $10K investment made 10 years ago into $8,305.11 today (as of 06/04/2021). On a total return basis, that’s a result of -16.95% (something to think about: how might LUMN shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lumen Technologies Inc paid investors a total of $19.81/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 1/share, we calculate that LUMN has a current yield of approximately 6.78%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $40.34/share purchase price. This works out to a yield on cost of 16.81%.
One more investment quote to leave you with:
“In investing, what is comfortable is rarely profitable.” — Robert Arnott
