“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a five year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 5 years to 2016, investors considering an investment into shares of PPG Industries Inc (NYSE: PPG) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.
| Start date: | 03/28/2016 |
|
|||
| End date: | 03/24/2021 | ||||
| Start price/share: | $109.40 | ||||
| End price/share: | $148.16 | ||||
| Starting shares: | 91.41 | ||||
| Ending shares: | 99.38 | ||||
| Dividends reinvested/share: | $9.38 | ||||
| Total return: | 47.25% | ||||
| Average annual return: | 8.06% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,724.76 | ||||
The above analysis shows the five year investment result worked out well, with an annualized rate of return of 8.06%. This would have turned a $10K investment made 5 years ago into $14,724.76 today (as of 03/24/2021). On a total return basis, that’s a result of 47.25% (something to think about: how might PPG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PPG Industries Inc paid investors a total of $9.38/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 2.16/share, we calculate that PPG has a current yield of approximately 1.46%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.16 against the original $109.40/share purchase price. This works out to a yield on cost of 1.33%.
One more investment quote to leave you with:
“Those who do not remember the past are condemned to repeat it.” — George Santayana
