“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a five year holding period for an investor who was considering Hormel Foods Corp. (NYSE: HRL) back in 2017, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 12/12/2017 |
|
|||
| End date: | 12/09/2022 | ||||
| Start price/share: | $36.99 | ||||
| End price/share: | $47.02 | ||||
| Starting shares: | 270.34 | ||||
| Ending shares: | 299.70 | ||||
| Dividends reinvested/share: | $4.54 | ||||
| Total return: | 40.92% | ||||
| Average annual return: | 7.11% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,092.45 | ||||
As shown above, the five year investment result worked out well, with an annualized rate of return of 7.11%. This would have turned a $10K investment made 5 years ago into $14,092.45 today (as of 12/09/2022). On a total return basis, that’s a result of 40.92% (something to think about: how might HRL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Hormel Foods Corp. paid investors a total of $4.54/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 1.1/share, we calculate that HRL has a current yield of approximately 2.34%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.1 against the original $36.99/share purchase price. This works out to a yield on cost of 6.33%.
Another great investment quote to think about:
“I’d like to live as a poor man with lots of money.” — Pablo Picasso
