“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 Automatic Data Processing Inc. (NASD: ADP)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 05/25/2016 |
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| End date: | 05/24/2021 | ||||
| Start price/share: | $87.52 | ||||
| End price/share: | $197.04 | ||||
| Starting shares: | 114.26 | ||||
| Ending shares: | 127.73 | ||||
| Dividends reinvested/share: | $14.64 | ||||
| Total return: | 151.68% | ||||
| Average annual return: | 20.27% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,164.40 | ||||
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 20.27%. This would have turned a $10K investment made 5 years ago into $25,164.40 today (as of 05/24/2021). On a total return basis, that’s a result of 151.68% (something to think about: how might ADP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 5 years, Automatic Data Processing Inc. has paid $14.64/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 3.72/share, we calculate that ADP has a current yield of approximately 1.89%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.72 against the original $87.52/share purchase price. This works out to a yield on cost of 2.16%.
One more piece of investment wisdom to leave you with:
“The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.” — Benjamin Graham
