“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a ten year holding period for an investor who was considering Lowe’s Companies Inc (NYSE: LOW) back in 2012, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 10/19/2012 |
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| End date: | 10/18/2022 | ||||
| Start price/share: | $32.64 | ||||
| End price/share: | $193.20 | ||||
| Starting shares: | 306.37 | ||||
| Ending shares: | 365.70 | ||||
| Dividends reinvested/share: | $18.05 | ||||
| Total return: | 606.53% | ||||
| Average annual return: | 21.59% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $70,666.11 | ||||
The above analysis shows the ten year investment result worked out exceptionally well, with an annualized rate of return of 21.59%. This would have turned a $10K investment made 10 years ago into $70,666.11 today (as of 10/18/2022). On a total return basis, that’s a result of 606.53% (something to think about: how might LOW shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lowe’s Companies Inc paid investors a total of $18.05/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 4.2/share, we calculate that LOW has a current yield of approximately 2.17%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.2 against the original $32.64/share purchase price. This works out to a yield on cost of 6.65%.
Here’s one more great investment quote before you go:
“The best stock to buy is the one you already own.” — Peter Lynch
