“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 Tractor Supply Co. (NASD: TSCO), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 09/09/2011 |
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| End date: | 09/08/2021 | ||||
| Start price/share: | $32.36 | ||||
| End price/share: | $199.37 | ||||
| Starting shares: | 309.02 | ||||
| Ending shares: | 346.34 | ||||
| Dividends reinvested/share: | $9.87 | ||||
| Total return: | 590.51% | ||||
| Average annual return: | 21.30% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $69,034.71 | ||||
As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 21.30%. This would have turned a $10K investment made 10 years ago into $69,034.71 today (as of 09/08/2021). On a total return basis, that’s a result of 590.51% (something to think about: how might TSCO shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Tractor Supply Co. paid investors a total of $9.87/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 2.08/share, we calculate that TSCO has a current yield of approximately 1.04%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.08 against the original $32.36/share purchase price. This works out to a yield on cost of 3.21%.
One more piece of investment wisdom to leave you with:
“The right time for a company to finance its growth is not when it needs capital, but rather when the market is most receptive to providing capital.” — Michael Milken
