“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 2020, investors considering an investment into shares of Packaging Corp of America (NYSE: PKG) 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: | 06/05/2020 |
|
|||
| End date: | 06/04/2025 | ||||
| Start price/share: | $110.56 | ||||
| End price/share: | $193.34 | ||||
| Starting shares: | 90.45 | ||||
| Ending shares: | 105.44 | ||||
| Dividends reinvested/share: | $22.58 | ||||
| Total return: | 103.85% | ||||
| Average annual return: | 15.31% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,386.13 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 15.31%. This would have turned a $10K investment made 5 years ago into $20,386.13 today (as of 06/04/2025). On a total return basis, that’s a result of 103.85% (something to think about: how might PKG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Packaging Corp of America paid investors a total of $22.58/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/share, we calculate that PKG has a current yield of approximately 2.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5 against the original $110.56/share purchase price. This works out to a yield on cost of 2.34%.
One more investment quote to leave you with:
“Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.” — Peter Lynch
