“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 Keurig Dr Pepper Inc (NASD: KDP) back in 2019, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 10/08/2019 |
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| End date: | 10/07/2024 | ||||
| Start price/share: | $26.93 | ||||
| End price/share: | $36.15 | ||||
| Starting shares: | 371.33 | ||||
| Ending shares: | 415.97 | ||||
| Dividends reinvested/share: | $3.73 | ||||
| Total return: | 50.37% | ||||
| Average annual return: | 8.50% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $15,039.93 | ||||
As shown above, the five year investment result worked out well, with an annualized rate of return of 8.50%. This would have turned a $10K investment made 5 years ago into $15,039.93 today (as of 10/07/2024). On a total return basis, that’s a result of 50.37% (something to think about: how might KDP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Keurig Dr Pepper Inc paid investors a total of $3.73/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 .92/share, we calculate that KDP has a current yield of approximately 2.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .92 against the original $26.93/share purchase price. This works out to a yield on cost of 9.43%.
Another great investment quote to think about:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
