“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 ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Microsoft Corporation (NASD: MSFT)? Today, we examine the outcome of a ten year investment into the stock back in 2012.
| Start date: | 08/16/2012 |
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| End date: | 08/15/2022 | ||||
| Start price/share: | $30.78 | ||||
| End price/share: | $293.47 | ||||
| Starting shares: | 324.89 | ||||
| Ending shares: | 395.32 | ||||
| Dividends reinvested/share: | $15.94 | ||||
| Total return: | 1,060.13% | ||||
| Average annual return: | 27.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $116,032.74 | ||||
As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 27.77%. This would have turned a $10K investment made 10 years ago into $116,032.74 today (as of 08/15/2022). On a total return basis, that’s a result of 1,060.13% (something to think about: how might MSFT shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Microsoft Corporation paid investors a total of $15.94/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 2.48/share, we calculate that MSFT has a current yield of approximately 0.85%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $30.78/share purchase price. This works out to a yield on cost of 2.76%.
More investment wisdom to ponder:
“Value investing means really asking what are the best values, and not assuming that because something looks expensive that it is, or assuming that because a stock is down in price and trades at low multiples that it is a bargain.” — Bill Miller
