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“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