“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 Zions Bancorporation, N.A. (NASD: ZION), by taking a look at the investment outcome over a five year holding period.
| Start date: | 11/07/2016 |
|
|||
| End date: | 11/04/2021 | ||||
| Start price/share: | $32.25 | ||||
| End price/share: | $64.29 | ||||
| Starting shares: | 310.08 | ||||
| Ending shares: | 348.26 | ||||
| Dividends reinvested/share: | $5.26 | ||||
| Total return: | 123.90% | ||||
| Average annual return: | 17.52% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $22,386.32 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 17.52%. This would have turned a $10K investment made 5 years ago into $22,386.32 today (as of 11/04/2021). On a total return basis, that’s a result of 123.90% (something to think about: how might ZION shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Zions Bancorporation, N.A. paid investors a total of $5.26/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 1.52/share, we calculate that ZION has a current yield of approximately 2.36%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.52 against the original $32.25/share purchase price. This works out to a yield on cost of 7.32%.
More investment wisdom to ponder:
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” — Warren Buffett
