“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year 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 Harris Corp. (NYSE: HRS), by taking a look at the investment outcome over a five year holding period.
| Start date: | 06/10/2014 |
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| End date: | 06/07/2019 | ||||
| Start price/share: | $77.46 | ||||
| End price/share: | $198.21 | ||||
| Starting shares: | 129.10 | ||||
| Ending shares: | 143.25 | ||||
| Dividends reinvested/share: | $11.02 | ||||
| Total return: | 183.94% | ||||
| Average annual return: | 23.24% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,396.26 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 23.24%. This would have turned a $10K investment made 5 years ago into $28,396.26 today (as of 06/07/2019). On a total return basis, that’s a result of 183.94% (something to think about: how might HRS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Harris Corp. paid investors a total of $11.02/share in dividends over the 5 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 2.74/share, we calculate that HRS has a current yield of approximately 1.38%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.74 against the original $77.46/share purchase price. This works out to a yield on cost of 1.78%.
One more investment quote to leave you with:
“Wide diversification is only required when investors do not understand what they are doing.” — Warren Buffett
