“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 Union Pacific Corp (NYSE: UNP)? Today, we examine the outcome of a five year investment into the stock back in 2017.
| Start date: | 04/28/2017 |
|
|||
| End date: | 04/27/2022 | ||||
| Start price/share: | $111.96 | ||||
| End price/share: | $236.79 | ||||
| Starting shares: | 89.32 | ||||
| Ending shares: | 99.18 | ||||
| Dividends reinvested/share: | $17.99 | ||||
| Total return: | 134.86% | ||||
| Average annual return: | 18.62% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,484.95 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 18.62%. This would have turned a $10K investment made 5 years ago into $23,484.95 today (as of 04/27/2022). On a total return basis, that’s a result of 134.86% (something to think about: how might UNP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Union Pacific Corp paid investors a total of $17.99/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 4.72/share, we calculate that UNP has a current yield of approximately 1.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.72 against the original $111.96/share purchase price. This works out to a yield on cost of 1.78%.
One more piece of investment wisdom to leave you with:
“Most investors want to do today what they should have done yesterday.” — Larry Summers
