“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 PPL Corp (NYSE: PPL)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 03/15/2016 |
|
|||
| End date: | 03/12/2021 | ||||
| Start price/share: | $36.51 | ||||
| End price/share: | $27.71 | ||||
| Starting shares: | 273.90 | ||||
| Ending shares: | 353.98 | ||||
| Dividends reinvested/share: | $8.09 | ||||
| Total return: | -1.91% | ||||
| Average annual return: | -0.39% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,806.73 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -0.39%. This would have turned a $10K investment made 5 years ago into $9,806.73 today (as of 03/12/2021). On a total return basis, that’s a result of -1.91% (something to think about: how might PPL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PPL Corp paid investors a total of $8.09/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 1.66/share, we calculate that PPL has a current yield of approximately 5.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.66 against the original $36.51/share purchase price. This works out to a yield on cost of 16.41%.
One more investment quote to leave you with:
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffett
