“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 PACCAR Inc. (NASD: PCAR)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 03/31/2016 |
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| End date: | 03/30/2021 | ||||
| Start price/share: | $54.69 | ||||
| End price/share: | $93.32 | ||||
| Starting shares: | 182.85 | ||||
| Ending shares: | 218.70 | ||||
| Dividends reinvested/share: | $12.48 | ||||
| Total return: | 104.10% | ||||
| Average annual return: | 15.34% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,412.67 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 15.34%. This would have turned a $10K investment made 5 years ago into $20,412.67 today (as of 03/30/2021). On a total return basis, that’s a result of 104.10% (something to think about: how might PCAR shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PACCAR Inc. paid investors a total of $12.48/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 1.28/share, we calculate that PCAR has a current yield of approximately 1.37%. 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 $54.69/share purchase price. This works out to a yield on cost of 2.51%.
More investment wisdom to ponder:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham
