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“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


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