“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 Valero Energy Corp (NYSE: VLO)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 08/27/2015 |
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| End date: | 08/26/2020 | ||||
| Start price/share: | $58.35 | ||||
| End price/share: | $53.70 | ||||
| Starting shares: | 171.38 | ||||
| Ending shares: | 211.50 | ||||
| Dividends reinvested/share: | $15.44 | ||||
| Total return: | 13.57% | ||||
| Average annual return: | 2.58% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,359.10 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 2.58%. This would have turned a $10K investment made 5 years ago into $11,359.10 today (as of 08/26/2020). On a total return basis, that’s a result of 13.57% (something to think about: how might VLO 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 VLO’s total return these past 5 years has been the payment by Valero Energy Corp of $15.44/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 3.92/share, we calculate that VLO has a current yield of approximately 7.30%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.92 against the original $58.35/share purchase price. This works out to a yield on cost of 12.51%.
Here’s one more great investment quote before you go:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
