“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.
|Average annual return:||15.34%|
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