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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 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 HollyFrontier Corp (NYSE: HFC), by taking a look at the investment outcome over a five year holding period.

Start date: 09/16/2014
$10,000

09/16/2014
$13,233

09/13/2019
End date: 09/13/2019
Start price/share: $46.53
End price/share: $51.38
Starting shares: 214.92
Ending shares: 257.51
Dividends reinvested/share: $7.08
Total return: 32.31%
Average annual return: 5.77%
Starting investment: $10,000.00
Ending investment: $13,233.63

As shown above, the five year investment result worked out well, with an annualized rate of return of 5.77%. This would have turned a $10K investment made 5 years ago into $13,233.63 today (as of 09/13/2019). On a total return basis, that’s a result of 32.31% (something to think about: how might HFC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that HollyFrontier Corp paid investors a total of $7.08/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 1.32/share, we calculate that HFC has a current yield of approximately 2.57%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.32 against the original $46.53/share purchase price. This works out to a yield on cost of 5.52%.

Another great investment quote to think about:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks