“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 J.M. Smucker Co. (NYSE: SJM), by taking a look at the investment outcome over a five year holding period.
| Start date: | 12/14/2018 |
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| End date: | 12/13/2023 | ||||
| Start price/share: | $101.91 | ||||
| End price/share: | $126.74 | ||||
| Starting shares: | 98.13 | ||||
| Ending shares: | 114.15 | ||||
| Dividends reinvested/share: | $18.98 | ||||
| Total return: | 44.68% | ||||
| Average annual return: | 7.67% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,470.17 | ||||
As shown above, the five year investment result worked out well, with an annualized rate of return of 7.67%. This would have turned a $10K investment made 5 years ago into $14,470.17 today (as of 12/13/2023). On a total return basis, that’s a result of 44.68% (something to think about: how might SJM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that J.M. Smucker Co. paid investors a total of $18.98/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 4.24/share, we calculate that SJM has a current yield of approximately 3.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.24 against the original $101.91/share purchase price. This works out to a yield on cost of 3.29%.
One more piece of investment wisdom to leave you with:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
