“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 Western Digital Corp (NASD: WDC)? Today, we examine the outcome of a ten year investment into the stock back in 2014.
| Start date: | 02/07/2014 |
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| End date: | 02/06/2024 | ||||
| Start price/share: | $84.68 | ||||
| End price/share: | $58.45 | ||||
| Starting shares: | 118.09 | ||||
| Ending shares: | 142.48 | ||||
| Dividends reinvested/share: | $12.00 | ||||
| Total return: | -16.72% | ||||
| Average annual return: | -1.81% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,330.11 | ||||
The above analysis shows the ten year investment result worked out poorly, with an annualized rate of return of -1.81%. This would have turned a $10K investment made 10 years ago into $8,330.11 today (as of 02/06/2024). On a total return basis, that’s a result of -16.72% (something to think about: how might WDC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of Western Digital Corp, investors have received $12.00/share in dividends these past 10 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use closing price on ex-date).
Based upon the most recent annualized dividend rate of 2/share, we calculate that WDC has a current yield of approximately 3.42%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $84.68/share purchase price. This works out to a yield on cost of 4.04%.
Another great investment quote to think about:
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions.” — Joel Greenblatt
