“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 ten year 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 Cisco Systems Inc (NASD: CSCO), by taking a look at the investment outcome over a ten year holding period.
|Average annual return:||12.50%|
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 12.50%. This would have turned a $10K investment made 10 years ago into $32,462.73 today (as of 12/28/2022). On a total return basis, that’s a result of 224.68% (something to think about: how might CSCO shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and Cisco Systems Inc has paid $11.26/share in dividends to shareholders over the past 10 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of 1.52/share, we calculate that CSCO has a current yield of approximately 3.23%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.52 against the original $19.65/share purchase price. This works out to a yield on cost of 16.44%.
One more investment quote to leave you with:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett