“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 Home Depot Inc (NYSE: HD), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 11/09/2010 |
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| End date: | 11/06/2020 | ||||
| Start price/share: | $31.47 | ||||
| End price/share: | $284.24 | ||||
| Starting shares: | 317.76 | ||||
| Ending shares: | 400.52 | ||||
| Dividends reinvested/share: | $28.62 | ||||
| Total return: | 1,038.44% | ||||
| Average annual return: | 27.54% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $113,884.37 | ||||
As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 27.54%. This would have turned a $10K investment made 10 years ago into $113,884.37 today (as of 11/06/2020). On a total return basis, that’s a result of 1,038.44% (something to think about: how might HD shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Home Depot Inc paid investors a total of $28.62/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 6/share, we calculate that HD has a current yield of approximately 2.11%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6 against the original $31.47/share purchase price. This works out to a yield on cost of 6.70%.
Here’s one more great investment quote before you go:
“The right time for a company to finance its growth is not when it needs capital, but rather when the market is most receptive to providing capital.” — Michael Milken
