Photo credit: commons.wikimedia.org

“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— Warren Buffett

The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Automatic Data Processing Inc. (NASD: ADP)? Today, we examine the outcome of a five year investment into the stock back in 2015.

Start date: 05/15/2015
$10,000

05/15/2015
$17,200

05/14/2020
End date: 05/14/2020
Start price/share: $87.77
End price/share: $134.95
Starting shares: 113.93
Ending shares: 127.46
Dividends reinvested/share: $13.00
Total return: 72.01%
Average annual return: 11.45%
Starting investment: $10,000.00
Ending investment: $17,200.04

As we can see, the five year investment result worked out quite well, with an annualized rate of return of 11.45%. This would have turned a $10K investment made 5 years ago into $17,200.04 today (as of 05/14/2020). On a total return basis, that’s a result of 72.01% (something to think about: how might ADP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Beyond share price change, another component of ADP’s total return these past 5 years has been the payment by Automatic Data Processing Inc. of $13.00/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).

Based upon the most recent annualized dividend rate of 3.64/share, we calculate that ADP has a current yield of approximately 2.70%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.64 against the original $87.77/share purchase price. This works out to a yield on cost of 3.08%.

One more investment quote to leave you with:
“Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.” — Peter Lynch