“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 ten year period?
Today, let’s look backwards in time to 2010, and take a look at what happened to investors who asked that very question about PACCAR Inc. (NASD: PCAR), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 02/08/2010 |
|
|||
| End date: | 02/06/2020 | ||||
| Start price/share: | $33.97 | ||||
| End price/share: | $77.59 | ||||
| Starting shares: | 294.38 | ||||
| Ending shares: | 415.23 | ||||
| Dividends reinvested/share: | $19.87 | ||||
| Total return: | 222.18% | ||||
| Average annual return: | 12.41% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $32,214.36 | ||||
The above analysis shows the ten year investment result worked out quite well, with an annualized rate of return of 12.41%. This would have turned a $10K investment made 10 years ago into $32,214.36 today (as of 02/06/2020). On a total return basis, that’s a result of 222.18% (something to think about: how might PCAR shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PACCAR Inc. paid investors a total of $19.87/share in dividends over the 10 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 1.28/share, we calculate that PCAR 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 1.28 against the original $33.97/share purchase price. This works out to a yield on cost of 4.86%.
One more piece of investment wisdom to leave you with:
“The most important thing about an investment philosophy is that you have one.” — David Booth
