“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 2010, and take a look at what happened to investors who asked that very question about Cisco Systems Inc (NASD: CSCO), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 06/18/2010 |
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| End date: | 06/17/2020 | ||||
| Start price/share: | $23.49 | ||||
| End price/share: | $46.17 | ||||
| Starting shares: | 425.71 | ||||
| Ending shares: | 554.74 | ||||
| Dividends reinvested/share: | $8.24 | ||||
| Total return: | 156.12% | ||||
| Average annual return: | 9.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,622.40 | ||||
As we can see, the ten year investment result worked out well, with an annualized rate of return of 9.86%. This would have turned a $10K investment made 10 years ago into $25,622.40 today (as of 06/17/2020). On a total return basis, that’s a result of 156.12% (something to think about: how might CSCO shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and Cisco Systems Inc has paid $8.24/share in dividends to shareholders over the past 10 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of 1.44/share, we calculate that CSCO has a current yield of approximately 3.12%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.44 against the original $23.49/share purchase price. This works out to a yield on cost of 13.28%.
One more investment quote to leave you with:
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” — Charlie Munger
