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“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— Warren Buffett

The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a five year period?

Today, let’s look backwards in time to 2016, and take a look at what happened to investors who asked that very question about Valero Energy Corp (NYSE: VLO), by taking a look at the investment outcome over a five year holding period.

Start date: 06/07/2016


End date: 06/04/2021
Start price/share: $55.64
End price/share: $83.24
Starting shares: 179.73
Ending shares: 225.48
Dividends reinvested/share: $16.68
Total return: 87.69%
Average annual return: 13.44%
Starting investment: $10,000.00
Ending investment: $18,772.88

As shown above, the five year investment result worked out quite well, with an annualized rate of return of 13.44%. This would have turned a $10K investment made 5 years ago into $18,772.88 today (as of 06/04/2021). On a total return basis, that’s a result of 87.69% (something to think about: how might VLO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Valero Energy Corp paid investors a total of $16.68/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 3.92/share, we calculate that VLO has a current yield of approximately 4.71%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.92 against the original $55.64/share purchase price. This works out to a yield on cost of 8.47%.

One more piece of investment wisdom to leave you with:
“Value investing means really asking what are the best values, and not assuming that because something looks expensive that it is, or assuming that because a stock is down in price and trades at low multiples that it is a bargain.” — Bill Miller