“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 2012, and take a look at what happened to investors who asked that very question about Qualcomm Inc (NASD: QCOM), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 04/18/2012 |
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| End date: | 04/14/2022 | ||||
| Start price/share: | $66.99 | ||||
| End price/share: | $136.91 | ||||
| Starting shares: | 149.28 | ||||
| Ending shares: | 197.36 | ||||
| Dividends reinvested/share: | $20.68 | ||||
| Total return: | 170.21% | ||||
| Average annual return: | 10.46% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,027.98 | ||||
As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 10.46%. This would have turned a $10K investment made 10 years ago into $27,027.98 today (as of 04/14/2022). On a total return basis, that’s a result of 170.21% (something to think about: how might QCOM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Qualcomm Inc paid investors a total of $20.68/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 3/share, we calculate that QCOM has a current yield of approximately 2.19%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3 against the original $66.99/share purchase price. This works out to a yield on cost of 3.27%.
Another great investment quote to think about:
“The stock market is a device to transfer money from the impatient to the patient.” — Warren Buffett
