“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: | 12/18/2014 |
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| End date: | 12/17/2019 | ||||
| Start price/share: | $87.70 | ||||
| End price/share: | $74.42 | ||||
| Starting shares: | 114.03 | ||||
| Ending shares: | 116.98 | ||||
| Dividends reinvested/share: | $2.04 | ||||
| Total return: | -12.95% | ||||
| Average annual return: | -2.73% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,707.52 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -2.73%. This would have turned a $10K investment made 5 years ago into $8,707.52 today (as of 12/17/2019). On a total return basis, that’s a result of -12.95% (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 $2.04/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 0.65%. 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 $87.70/share purchase price. This works out to a yield on cost of 0.74%.
More investment wisdom to ponder:
“All intelligent investing is value investing: acquiring more that you are paying for. You must value the business in order to value the stock.” — Charlie Munger
