“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 Wabtec Corp (NYSE: WAB)? Today, we examine the outcome of a five year investment into the stock back in 2014.
Start date: | 09/10/2014 |
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End date: | 09/09/2019 | ||||
Start price/share: | $83.00 | ||||
End price/share: | $70.38 | ||||
Starting shares: | 120.48 | ||||
Ending shares: | 123.49 | ||||
Dividends reinvested/share: | $1.98 | ||||
Total return: | -13.09% | ||||
Average annual return: | -2.77% | ||||
Starting investment: | $10,000.00 | ||||
Ending investment: | $8,689.63 |
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -2.77%. This would have turned a $10K investment made 5 years ago into $8,689.63 today (as of 09/09/2019). On a total return basis, that’s a result of -13.09% (something to think about: how might WAB shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Wabtec Corp paid investors a total of $1.98/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 .48/share, we calculate that WAB has a current yield of approximately 0.68%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .48 against the original $83.00/share purchase price. This works out to a yield on cost of 0.82%.
Another great investment quote to think about:
“He who earns and does not invest will have to work for the rest of his life.” — Debasish Mridha