“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into PACCAR Inc. (NASD: PCAR)? Today, we examine the outcome of a ten year investment into the stock back in 2010.
| Start date: | 10/08/2010 |
|
|||
| End date: | 10/07/2020 | ||||
| Start price/share: | $50.25 | ||||
| End price/share: | $89.89 | ||||
| Starting shares: | 199.00 | ||||
| Ending shares: | 282.34 | ||||
| Dividends reinvested/share: | $20.56 | ||||
| Total return: | 153.80% | ||||
| Average annual return: | 9.76% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,389.99 | ||||
As shown above, the ten year investment result worked out well, with an annualized rate of return of 9.76%. This would have turned a $10K investment made 10 years ago into $25,389.99 today (as of 10/07/2020). On a total return basis, that’s a result of 153.80% (something to think about: how might PCAR shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PACCAR Inc. paid investors a total of $20.56/share in dividends over the 10 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 1.28/share, we calculate that PCAR has a current yield of approximately 1.42%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.28 against the original $50.25/share purchase price. This works out to a yield on cost of 2.83%.
More investment wisdom to ponder:
“Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.” — Peter Lynch
