“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 2020, and take a look at what happened to investors who asked that very question about NXP Semiconductors NV (NASD: NXPI), by taking a look at the investment outcome over a five year holding period.
| Start date: | 02/25/2020 |
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| End date: | 02/24/2025 | ||||
| Start price/share: | $120.82 | ||||
| End price/share: | $233.15 | ||||
| Starting shares: | 82.77 | ||||
| Ending shares: | 89.37 | ||||
| Dividends reinvested/share: | $14.23 | ||||
| Total return: | 108.38% | ||||
| Average annual return: | 15.81% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,840.35 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 15.81%. This would have turned a $10K investment made 5 years ago into $20,840.35 today (as of 02/24/2025). On a total return basis, that’s a result of 108.38% (something to think about: how might NXPI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that NXP Semiconductors NV paid investors a total of $14.23/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 4.056/share, we calculate that NXPI has a current yield of approximately 1.74%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.056 against the original $120.82/share purchase price. This works out to a yield on cost of 1.44%.
Here’s one more great investment quote before you go:
“Those who do not remember the past are condemned to repeat it.” — George Santayana
