“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 2015, and take a look at what happened to investors who asked that very question about Dover Corp (NYSE: DOV), by taking a look at the investment outcome over a five year holding period.
| Start date: | 01/26/2015 |
|
|||
| End date: | 01/23/2020 | ||||
| Start price/share: | $57.32 | ||||
| End price/share: | $118.65 | ||||
| Starting shares: | 174.46 | ||||
| Ending shares: | 195.28 | ||||
| Dividends reinvested/share: | $7.93 | ||||
| Total return: | 131.70% | ||||
| Average annual return: | 18.32% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,168.10 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 18.32%. This would have turned a $10K investment made 5 years ago into $23,168.10 today (as of 01/23/2020). On a total return basis, that’s a result of 131.70% (something to think about: how might DOV shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Dover Corp paid investors a total of $7.93/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 1.96/share, we calculate that DOV has a current yield of approximately 1.65%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.96 against the original $57.32/share purchase price. This works out to a yield on cost of 2.88%.
One more piece of investment wisdom to leave you with:
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” — Albert Einstein
