“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 decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Northrop Grumman Corp (NYSE: NOC)? Today, we examine the outcome of a decade-long investment into the stock back in 2009.
| Start date: | 09/23/2009 |
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| End date: | 09/20/2019 | ||||
| Start price/share: | $46.58 | ||||
| End price/share: | $368.18 | ||||
| Starting shares: | 214.68 | ||||
| Ending shares: | 270.79 | ||||
| Dividends reinvested/share: | $30.26 | ||||
| Total return: | 896.98% | ||||
| Average annual return: | 25.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $99,678.99 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 25.86%. This would have turned a $10K investment made 10 years ago into $99,678.99 today (as of 09/20/2019). On a total return basis, that’s a result of 896.98% (something to think about: how might NOC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Northrop Grumman Corp paid investors a total of $30.26/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 5.28/share, we calculate that NOC has a current yield of approximately 1.43%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.28 against the original $46.58/share purchase price. This works out to a yield on cost of 3.07%.
One more investment quote to leave you with:
“Most investors want to do today what they should have done yesterday.” — Larry Summers
