“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 Kellanova (NYSE: K), by taking a look at the investment outcome over a five year holding period.
| Start date: | 06/10/2019 |
|
|||
| End date: | 06/07/2024 | ||||
| Start price/share: | $51.43 | ||||
| End price/share: | $59.63 | ||||
| Starting shares: | 194.44 | ||||
| Ending shares: | 232.93 | ||||
| Dividends reinvested/share: | $10.93 | ||||
| Total return: | 38.90% | ||||
| Average annual return: | 6.80% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,892.42 | ||||
As shown above, the five year investment result worked out well, with an annualized rate of return of 6.80%. This would have turned a $10K investment made 5 years ago into $13,892.42 today (as of 06/07/2024). On a total return basis, that’s a result of 38.90% (something to think about: how might K shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Kellanova paid investors a total of $10.93/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 2.24/share, we calculate that K has a current yield of approximately 3.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.24 against the original $51.43/share purchase price. This works out to a yield on cost of 7.31%.
One more investment quote to leave you with:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer
