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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 Paychex Inc (NASD: PAYX), by taking a look at the investment outcome over a five year holding period.

Start date: 05/08/2015


End date: 05/07/2020
Start price/share: $49.13
End price/share: $68.07
Starting shares: 203.54
Ending shares: 237.05
Dividends reinvested/share: $9.74
Total return: 61.36%
Average annual return: 10.04%
Starting investment: $10,000.00
Ending investment: $16,138.63

As shown above, the five year investment result worked out quite well, with an annualized rate of return of 10.04%. This would have turned a $10K investment made 5 years ago into $16,138.63 today (as of 05/07/2020). On a total return basis, that’s a result of 61.36% (something to think about: how might PAYX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Paychex Inc paid investors a total of $9.74/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 2.48/share, we calculate that PAYX has a current yield of approximately 3.64%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $49.13/share purchase price. This works out to a yield on cost of 7.41%.

One more investment quote to leave you with:
“The greater the passive income you can build, the freer you will become.” — Todd Fleming