“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Packaging Corp of America (NYSE: PKG)? Today, we examine the outcome of a decade-long investment into the stock back in 2009.
| Start date: | 07/27/2009 |
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| End date: | 07/25/2019 | ||||
| Start price/share: | $19.65 | ||||
| End price/share: | $101.99 | ||||
| Starting shares: | 508.91 | ||||
| Ending shares: | 676.21 | ||||
| Dividends reinvested/share: | $17.47 | ||||
| Total return: | 589.67% | ||||
| Average annual return: | 21.30% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $68,961.71 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 21.30%. This would have turned a $10K investment made 10 years ago into $68,961.71 today (as of 07/25/2019). On a total return basis, that’s a result of 589.67% (something to think about: how might PKG shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Packaging Corp of America paid investors a total of $17.47/share in dividends over the 10 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 3.16/share, we calculate that PKG has a current yield of approximately 3.10%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.16 against the original $19.65/share purchase price. This works out to a yield on cost of 15.78%.
One more piece of investment wisdom to leave you with:
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” — Warren Buffett
