“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 W.W. Grainger Inc. (NYSE: GWW)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 06/23/2014 |
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| End date: | 06/20/2019 | ||||
| Start price/share: | $259.93 | ||||
| End price/share: | $276.80 | ||||
| Starting shares: | 38.47 | ||||
| Ending shares: | 42.70 | ||||
| Dividends reinvested/share: | $24.80 | ||||
| Total return: | 18.18% | ||||
| Average annual return: | 3.40% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,817.43 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 3.40%. This would have turned a $10K investment made 5 years ago into $11,817.43 today (as of 06/20/2019). On a total return basis, that’s a result of 18.18% (something to think about: how might GWW shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that W.W. Grainger Inc. paid investors a total of $24.80/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 5.76/share, we calculate that GWW has a current yield of approximately 2.08%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.76 against the original $259.93/share purchase price. This works out to a yield on cost of 0.80%.
Another great investment quote to think about:
“I’d like to live as a poor man with lots of money.” — Pablo Picasso
