“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 2018, and take a look at what happened to investors who asked that very question about United Parcel Service Inc (NYSE: UPS), by taking a look at the investment outcome over a five year holding period.
| Start date: | 11/14/2018 |
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| End date: | 11/13/2023 | ||||
| Start price/share: | $109.50 | ||||
| End price/share: | $138.17 | ||||
| Starting shares: | 91.32 | ||||
| Ending shares: | 108.02 | ||||
| Dividends reinvested/share: | $25.43 | ||||
| Total return: | 49.26% | ||||
| Average annual return: | 8.34% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,926.02 | ||||
The above analysis shows the five year investment result worked out well, with an annualized rate of return of 8.34%. This would have turned a $10K investment made 5 years ago into $14,926.02 today (as of 11/13/2023). On a total return basis, that’s a result of 49.26% (something to think about: how might UPS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that United Parcel Service Inc paid investors a total of $25.43/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 6.48/share, we calculate that UPS has a current yield of approximately 4.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.48 against the original $109.50/share purchase price. This works out to a yield on cost of 4.28%.
One more piece of investment wisdom to leave you with:
“If you can follow only one bit of data, follow the earnings.” — Peter Lynch
