“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 Yum! Brands Inc (NYSE: YUM)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 06/19/2014 |
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| End date: | 06/18/2019 | ||||
| Start price/share: | $57.78 | ||||
| End price/share: | $108.71 | ||||
| Starting shares: | 173.07 | ||||
| Ending shares: | 191.13 | ||||
| Dividends reinvested/share: | $6.61 | ||||
| Total return: | 107.77% | ||||
| Average annual return: | 15.75% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,778.06 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 15.75%. This would have turned a $10K investment made 5 years ago into $20,778.06 today (as of 06/18/2019). On a total return basis, that’s a result of 107.77% (something to think about: how might YUM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Yum! Brands Inc paid investors a total of $6.61/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 1.68/share, we calculate that YUM has a current yield of approximately 1.55%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.68 against the original $57.78/share purchase price. This works out to a yield on cost of 2.68%.
More investment wisdom to ponder:
“The older I get, the more I see a straight path where I want to go. If you’re going to hunt elephants, don’t get off the trail for a rabbit.” — T. Boone Pickens
