“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a five year holding period for an investor who was considering Procter & Gamble Company (NYSE: PG) back in 2014, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 10/31/2014 |
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| End date: | 10/30/2019 | ||||
| Start price/share: | $87.27 | ||||
| End price/share: | $124.94 | ||||
| Starting shares: | 114.59 | ||||
| Ending shares: | 134.26 | ||||
| Dividends reinvested/share: | $13.84 | ||||
| Total return: | 67.75% | ||||
| Average annual return: | 10.90% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,774.81 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 10.90%. This would have turned a $10K investment made 5 years ago into $16,774.81 today (as of 10/30/2019). On a total return basis, that’s a result of 67.75% (something to think about: how might PG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Procter & Gamble Company paid investors a total of $13.84/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 2.9836/share, we calculate that PG has a current yield of approximately 2.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.9836 against the original $87.27/share purchase price. This works out to a yield on cost of 2.74%.
One more piece of investment wisdom to leave you with:
“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” — Peter Lynch
