“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 Global Payments Inc (NYSE: GPN), by taking a look at the investment outcome over a five year holding period.
| Start date: | 04/02/2015 |
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| End date: | 04/01/2020 | ||||
| Start price/share: | $45.96 | ||||
| End price/share: | $133.11 | ||||
| Starting shares: | 217.58 | ||||
| Ending shares: | 218.56 | ||||
| Dividends reinvested/share: | $0.57 | ||||
| Total return: | 190.92% | ||||
| Average annual return: | 23.80% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $29,097.61 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 23.80%. This would have turned a $10K investment made 5 years ago into $29,097.61 today (as of 04/01/2020). On a total return basis, that’s a result of 190.92% (something to think about: how might GPN shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Global Payments Inc paid investors a total of $0.57/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 .78/share, we calculate that GPN has a current yield of approximately 0.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .78 against the original $45.96/share purchase price. This works out to a yield on cost of 1.28%.
Another great investment quote to think about:
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” — Peter Lynch
