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“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 Fastenal Co. (NASD: FAST), by taking a look at the investment outcome over a five year holding period.

Start date: 04/21/2015
$10,000

04/21/2015
$19,464

04/20/2020
End date: 04/20/2020
Start price/share: $20.63
End price/share: $34.92
Starting shares: 484.73
Ending shares: 557.36
Dividends reinvested/share: $3.55
Total return: 94.63%
Average annual return: 14.24%
Starting investment: $10,000.00
Ending investment: $19,464.77

The above analysis shows the five year investment result worked out quite well, with an annualized rate of return of 14.24%. This would have turned a $10K investment made 5 years ago into $19,464.77 today (as of 04/20/2020). On a total return basis, that’s a result of 94.63% (something to think about: how might FAST shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Fastenal Co. paid investors a total of $3.55/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/share, we calculate that FAST has a current yield of approximately 2.86%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $20.63/share purchase price. This works out to a yield on cost of 13.86%.

Another great investment quote to think about:
“Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety.” — Benjamin Graham