“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 Prologis Inc (NYSE: PLD), by taking a look at the investment outcome over a five year holding period.
| Start date: | 06/19/2015 |
|
|||
| End date: | 06/18/2020 | ||||
| Start price/share: | $39.30 | ||||
| End price/share: | $95.09 | ||||
| Starting shares: | 254.45 | ||||
| Ending shares: | 296.93 | ||||
| Dividends reinvested/share: | $9.44 | ||||
| Total return: | 182.36% | ||||
| Average annual return: | 23.06% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,237.84 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 23.06%. This would have turned a $10K investment made 5 years ago into $28,237.84 today (as of 06/18/2020). On a total return basis, that’s a result of 182.36% (something to think about: how might PLD shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Prologis Inc paid investors a total of $9.44/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 2.32/share, we calculate that PLD has a current yield of approximately 2.44%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.32 against the original $39.30/share purchase price. This works out to a yield on cost of 6.21%.
More investment wisdom to ponder:
“All the opportunity in the world means nothing if you don’t actually pull the trigger.” — Sam Zell
