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“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— Warren Buffett

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Northrop Grumman Corp (NYSE: NOC) back in 2012. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 12/03/2012


End date: 11/30/2022
Start price/share: $65.79
End price/share: $533.29
Starting shares: 152.00
Ending shares: 180.89
Dividends reinvested/share: $42.47
Total return: 864.68%
Average annual return: 25.45%
Starting investment: $10,000.00
Ending investment: $96,479.91

As shown above, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 25.45%. This would have turned a $10K investment made 10 years ago into $96,479.91 today (as of 11/30/2022). On a total return basis, that’s a result of 864.68% (something to think about: how might NOC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Northrop Grumman Corp paid investors a total of $42.47/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 6.92/share, we calculate that NOC has a current yield of approximately 1.30%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.92 against the original $65.79/share purchase price. This works out to a yield on cost of 1.98%.

One more piece of investment wisdom to leave you with:
“We ignore outlooks and forecasts… we’re lousy at it and we admit it … everyone else is lousy too, but most people won’t admit it.” — Martin Whitman