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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 United Parcel Service Inc (NYSE: UPS), by taking a look at the investment outcome over a five year holding period.

Start date: 09/18/2015
$10,000

09/18/2015
$19,075

09/17/2020
End date: 09/17/2020
Start price/share: $98.32
End price/share: $159.75
Starting shares: 101.71
Ending shares: 119.39
Dividends reinvested/share: $17.68
Total return: 90.73%
Average annual return: 13.78%
Starting investment: $10,000.00
Ending investment: $19,075.82

As shown above, the five year investment result worked out quite well, with an annualized rate of return of 13.78%. This would have turned a $10K investment made 5 years ago into $19,075.82 today (as of 09/17/2020). On a total return basis, that’s a result of 90.73% (something to think about: how might UPS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that United Parcel Service Inc paid investors a total of $17.68/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 4.04/share, we calculate that UPS has a current yield of approximately 2.53%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.04 against the original $98.32/share purchase price. This works out to a yield on cost of 2.57%.

One more investment quote to leave you with:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer