“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 2013, and take a look at what happened to investors who asked that very question about Texas Instruments Inc. (NASD: TXN), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 04/03/2013 |
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| End date: | 03/31/2023 | ||||
| Start price/share: | $34.15 | ||||
| End price/share: | $186.01 | ||||
| Starting shares: | 292.83 | ||||
| Ending shares: | 382.35 | ||||
| Dividends reinvested/share: | $26.96 | ||||
| Total return: | 611.20% | ||||
| Average annual return: | 21.68% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $71,114.56 | ||||
As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 21.68%. This would have turned a $10K investment made 10 years ago into $71,114.56 today (as of 03/31/2023). On a total return basis, that’s a result of 611.20% (something to think about: how might TXN shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Texas Instruments Inc. paid investors a total of $26.96/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 4.96/share, we calculate that TXN has a current yield of approximately 2.67%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.96 against the original $34.15/share purchase price. This works out to a yield on cost of 7.82%.
One more piece of investment wisdom to leave you with:
“The most important thing about an investment philosophy is that you have one.” — David Booth
