“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into PepsiCo Inc (NASD: PEP)? Today, we examine the outcome of a five year investment into the stock back in 2020.
| Start date: | 04/15/2020 |
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| End date: | 04/14/2025 | ||||
| Start price/share: | $135.03 | ||||
| End price/share: | $146.75 | ||||
| Starting shares: | 74.06 | ||||
| Ending shares: | 85.66 | ||||
| Dividends reinvested/share: | $23.47 | ||||
| Total return: | 25.71% | ||||
| Average annual return: | 4.68% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,569.52 | ||||
The above analysis shows the five year investment result worked out as follows, with an annualized rate of return of 4.68%. This would have turned a $10K investment made 5 years ago into $12,569.52 today (as of 04/14/2025). On a total return basis, that’s a result of 25.71% (something to think about: how might PEP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PepsiCo Inc paid investors a total of $23.47/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 5.42/share, we calculate that PEP has a current yield of approximately 3.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.42 against the original $135.03/share purchase price. This works out to a yield on cost of 2.73%.
More investment wisdom to ponder:
“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” — Mark Twain
