“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a five year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 5 years to 2019, investors considering an investment into shares of Parker Hannifin Corp (NYSE: PH) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.
| Start date: | 10/16/2019 |
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| End date: | 10/15/2024 | ||||
| Start price/share: | $180.25 | ||||
| End price/share: | $638.02 | ||||
| Starting shares: | 55.48 | ||||
| Ending shares: | 59.91 | ||||
| Dividends reinvested/share: | $23.90 | ||||
| Total return: | 282.22% | ||||
| Average annual return: | 30.74% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $38,226.22 | ||||
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 30.74%. This would have turned a $10K investment made 5 years ago into $38,226.22 today (as of 10/15/2024). On a total return basis, that’s a result of 282.22% (something to think about: how might PH shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Parker Hannifin Corp paid investors a total of $23.90/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 6.52/share, we calculate that PH has a current yield of approximately 1.02%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.52 against the original $180.25/share purchase price. This works out to a yield on cost of 0.57%.
Here’s one more great investment quote before you go:
“I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.” — Peter Lynch
