“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 Advance Auto Parts Inc (NYSE: AAP)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 02/25/2016 |
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| End date: | 02/24/2021 | ||||
| Start price/share: | $150.08 | ||||
| End price/share: | $166.15 | ||||
| Starting shares: | 66.63 | ||||
| Ending shares: | 67.62 | ||||
| Dividends reinvested/share: | $1.96 | ||||
| Total return: | 12.34% | ||||
| Average annual return: | 2.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,232.25 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 2.35%. This would have turned a $10K investment made 5 years ago into $11,232.25 today (as of 02/24/2021). On a total return basis, that’s a result of 12.34% (something to think about: how might AAP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Advance Auto Parts Inc paid investors a total of $1.96/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 1/share, we calculate that AAP has a current yield of approximately 0.60%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $150.08/share purchase price. This works out to a yield on cost of 0.40%.
Here’s one more great investment quote before you go:
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently.” — Jack Bogle
