“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 decade-long period?
Today, let’s look backwards in time to 2014, and take a look at what happened to investors who asked that very question about eBay Inc. (NASD: EBAY), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 11/28/2014 |
|
|||
| End date: | 11/26/2024 | ||||
| Start price/share: | $23.10 | ||||
| End price/share: | $65.09 | ||||
| Starting shares: | 432.90 | ||||
| Ending shares: | 476.99 | ||||
| Dividends reinvested/share: | $4.61 | ||||
| Total return: | 210.47% | ||||
| Average annual return: | 11.99% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $31,040.39 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 11.99%. This would have turned a $10K investment made 10 years ago into $31,040.39 today (as of 11/26/2024). On a total return basis, that’s a result of 210.47% (something to think about: how might EBAY shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that eBay Inc. paid investors a total of $4.61/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 1.08/share, we calculate that EBAY has a current yield of approximately 1.66%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.08 against the original $23.10/share purchase price. This works out to a yield on cost of 7.19%.
One more investment quote to leave you with:
“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make.” — Bill Gross
