“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 Costco Wholesale Corp (NASD: COST)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 08/24/2018 |
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| End date: | 08/23/2023 | ||||
| Start price/share: | $231.28 | ||||
| End price/share: | $540.86 | ||||
| Starting shares: | 43.24 | ||||
| Ending shares: | 46.21 | ||||
| Dividends reinvested/share: | $24.89 | ||||
| Total return: | 149.93% | ||||
| Average annual return: | 20.11% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $24,997.46 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 20.11%. This would have turned a $10K investment made 5 years ago into $24,997.46 today (as of 08/23/2023). On a total return basis, that’s a result of 149.93% (something to think about: how might COST shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Costco Wholesale Corp paid investors a total of $24.89/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 4.08/share, we calculate that COST has a current yield of approximately 0.75%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.08 against the original $231.28/share purchase price. This works out to a yield on cost of 0.32%.
One more investment quote to leave you with:
“The right time for a company to finance its growth is not when it needs capital, but rather when the market is most receptive to providing capital.” — Michael Milken
