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“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 2019, and take a look at what happened to investors who asked that very question about Principal Financial Group Inc (NASD: PFG), by taking a look at the investment outcome over a five year holding period.

Start date: 06/04/2019


End date: 06/03/2024
Start price/share: $54.80
End price/share: $80.74
Starting shares: 182.48
Ending shares: 222.24
Dividends reinvested/share: $12.34
Total return: 79.44%
Average annual return: 12.40%
Starting investment: $10,000.00
Ending investment: $17,946.12

As shown above, the five year investment result worked out quite well, with an annualized rate of return of 12.40%. This would have turned a $10K investment made 5 years ago into $17,946.12 today (as of 06/03/2024). On a total return basis, that’s a result of 79.44% (something to think about: how might PFG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Principal Financial Group Inc paid investors a total of $12.34/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 2.84/share, we calculate that PFG has a current yield of approximately 3.52%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.84 against the original $54.80/share purchase price. This works out to a yield on cost of 6.42%.

Another great investment quote to think about:
“Spend each day trying to be a little wiser than you were when you woke up.” — Charlie Munger