“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 United Rentals Inc (NYSE: URI) back in 2018, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 10/19/2018 |
|
|||
| End date: | 10/18/2023 | ||||
| Start price/share: | $117.12 | ||||
| End price/share: | $429.34 | ||||
| Starting shares: | 85.38 | ||||
| Ending shares: | 86.30 | ||||
| Dividends reinvested/share: | $4.44 | ||||
| Total return: | 270.51% | ||||
| Average annual return: | 29.94% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $37,043.70 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 29.94%. This would have turned a $10K investment made 5 years ago into $37,043.70 today (as of 10/18/2023). On a total return basis, that’s a result of 270.51% (something to think about: how might URI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that United Rentals Inc paid investors a total of $4.44/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 5.92/share, we calculate that URI has a current yield of approximately 1.38%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.92 against the original $117.12/share purchase price. This works out to a yield on cost of 1.18%.
One more piece of investment wisdom to leave you with:
“We ignore outlooks and forecasts… we’re lousy at it and we admit it … everyone else is lousy too, but most people won’t admit it.” — Martin Whitman
