“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 Broadridge Financial Solutions (NYSE: BR), by taking a look at the investment outcome over a five year holding period.
| Start date: | 10/03/2014 |
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| End date: | 10/02/2019 | ||||
| Start price/share: | $41.35 | ||||
| End price/share: | $121.63 | ||||
| Starting shares: | 241.84 | ||||
| Ending shares: | 265.53 | ||||
| Dividends reinvested/share: | $7.27 | ||||
| Total return: | 222.97% | ||||
| Average annual return: | 26.42% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $32,290.81 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 26.42%. This would have turned a $10K investment made 5 years ago into $32,290.81 today (as of 10/02/2019). On a total return basis, that’s a result of 222.97% (something to think about: how might BR shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Broadridge Financial Solutions paid investors a total of $7.27/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 2.16/share, we calculate that BR has a current yield of approximately 1.78%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.16 against the original $41.35/share purchase price. This works out to a yield on cost of 4.30%.
More investment wisdom to ponder:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer
