“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 Ross Stores, Inc. (NASD: ROST), by taking a look at the investment outcome over a five year holding period.
| Start date: | 06/24/2014 |
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| End date: | 06/21/2019 | ||||
| Start price/share: | $33.38 | ||||
| End price/share: | $103.96 | ||||
| Starting shares: | 299.58 | ||||
| Ending shares: | 314.60 | ||||
| Dividends reinvested/share: | $3.26 | ||||
| Total return: | 227.06% | ||||
| Average annual return: | 26.78% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $32,710.64 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 26.78%. This would have turned a $10K investment made 5 years ago into $32,710.64 today (as of 06/21/2019). On a total return basis, that’s a result of 227.06% (something to think about: how might ROST shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ross Stores, Inc. paid investors a total of $3.26/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 1.02/share, we calculate that ROST has a current yield of approximately 0.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.02 against the original $33.38/share purchase price. This works out to a yield on cost of 2.94%.
Another great investment quote to think about:
“Nearly every time I strayed from the herd, I’ve made a lot of money. Wandering away from the action is the way to find the new action.” — Jim Rogers
