“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 Morgan Stanley (NYSE: MS)? Today, we examine the outcome of a ten year investment into the stock back in 2011.
| Start date: | 04/25/2011 |
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| End date: | 04/21/2021 | ||||
| Start price/share: | $25.78 | ||||
| End price/share: | $79.25 | ||||
| Starting shares: | 387.90 | ||||
| Ending shares: | 465.04 | ||||
| Dividends reinvested/share: | $7.20 | ||||
| Total return: | 268.54% | ||||
| Average annual return: | 13.94% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $36,864.37 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 13.94%. This would have turned a $10K investment made 10 years ago into $36,864.37 today (as of 04/21/2021). On a total return basis, that’s a result of 268.54% (something to think about: how might MS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Morgan Stanley paid investors a total of $7.20/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 1.4/share, we calculate that MS has a current yield of approximately 1.77%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $25.78/share purchase price. This works out to a yield on cost of 6.87%.
Here’s one more great investment quote before you go:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett
