“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 2020, and take a look at what happened to investors who asked that very question about General Dynamics Corp (NYSE: GD), by taking a look at the investment outcome over a five year holding period.
| Start date: | 03/10/2020 |
|
|||
| End date: | 03/07/2025 | ||||
| Start price/share: | $155.30 | ||||
| End price/share: | $271.56 | ||||
| Starting shares: | 64.39 | ||||
| Ending shares: | 72.56 | ||||
| Dividends reinvested/share: | $25.16 | ||||
| Total return: | 97.04% | ||||
| Average annual return: | 14.55% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $19,708.44 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 14.55%. This would have turned a $10K investment made 5 years ago into $19,708.44 today (as of 03/07/2025). On a total return basis, that’s a result of 97.04% (something to think about: how might GD shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that General Dynamics Corp paid investors a total of $25.16/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/share, we calculate that GD has a current yield of approximately 2.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6 against the original $155.30/share purchase price. This works out to a yield on cost of 1.42%.
Here’s one more great investment quote before you go:
“It’s not how much money you make, but how much money you keep.” — Robert Kiyosaki
