“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Skyworks Solutions Inc (NASD: SWKS) back in 2001: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 10/29/2001 |
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| End date: | 10/27/2021 | ||||
| Start price/share: | $24.34 | ||||
| End price/share: | $165.90 | ||||
| Starting shares: | 410.85 | ||||
| Ending shares: | 455.82 | ||||
| Dividends reinvested/share: | $9.89 | ||||
| Total return: | 656.20% | ||||
| Average annual return: | 10.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $75,593.41 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 10.64%. This would have turned a $10K investment made 20 years ago into $75,593.41 today (as of 10/27/2021). On a total return basis, that’s a result of 656.20% (something to think about: how might SWKS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Skyworks Solutions Inc paid investors a total of $9.89/share in dividends over the 20 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 2.24/share, we calculate that SWKS has a current yield of approximately 1.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.24 against the original $24.34/share purchase price. This works out to a yield on cost of 5.55%.
More investment wisdom to ponder:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham
