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“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— Warren Buffett

The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into United Parcel Service Inc (NYSE: UPS)? Today, we examine the outcome of a five year investment into the stock back in 2014.

Start date: 06/13/2014
$10,000

06/13/2014
$11,570

06/12/2019
End date: 06/12/2019
Start price/share: $101.03
End price/share: $100.40
Starting shares: 98.98
Ending shares: 115.23
Dividends reinvested/share: $16.26
Total return: 15.69%
Average annual return: 2.96%
Starting investment: $10,000.00
Ending investment: $11,570.25

The above analysis shows the five year investment result worked out as follows, with an annualized rate of return of 2.96%. This would have turned a $10K investment made 5 years ago into $11,570.25 today (as of 06/12/2019). On a total return basis, that’s a result of 15.69% (something to think about: how might UPS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that United Parcel Service Inc paid investors a total of $16.26/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 3.84/share, we calculate that UPS has a current yield of approximately 3.82%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.84 against the original $101.03/share purchase price. This works out to a yield on cost of 3.78%.

Another great investment quote to think about:
“An investment in knowledge pays the best interest.” — Benjamin Franklin