“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year period?
Today, let’s look backwards in time to 2019, and take a look at what happened to investors who asked that very question about Seagate Technology Holdings PLC (NASD: STX), by taking a look at the investment outcome over a five year holding period.
| Start date: | 08/05/2019 |
|
|||
| End date: | 08/02/2024 | ||||
| Start price/share: | $44.44 | ||||
| End price/share: | $94.57 | ||||
| Starting shares: | 225.02 | ||||
| Ending shares: | 276.36 | ||||
| Dividends reinvested/share: | $13.61 | ||||
| Total return: | 161.36% | ||||
| Average annual return: | 21.20% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $26,138.72 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 21.20%. This would have turned a $10K investment made 5 years ago into $26,138.72 today (as of 08/02/2024). On a total return basis, that’s a result of 161.36% (something to think about: how might STX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Seagate Technology Holdings PLC paid investors a total of $13.61/share in dividends over the 5 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 2.8/share, we calculate that STX has a current yield of approximately 2.96%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.8 against the original $44.44/share purchase price. This works out to a yield on cost of 6.66%.
Another great investment quote to think about:
“The greater the passive income you can build, the freer you will become.” — Todd Fleming
