“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into PACCAR Inc. (NASD: PCAR)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 06/08/2000 |
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| End date: | 06/05/2020 | ||||
| Start price/share: | $8.31 | ||||
| End price/share: | $77.95 | ||||
| Starting shares: | 1,203.37 | ||||
| Ending shares: | 2,351.24 | ||||
| Dividends reinvested/share: | $29.52 | ||||
| Total return: | 1,732.79% | ||||
| Average annual return: | 15.65% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $183,340.64 | ||||
As we can see, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 15.65%. This would have turned a $10K investment made 20 years ago into $183,340.64 today (as of 06/05/2020). On a total return basis, that’s a result of 1,732.79% (something to think about: how might PCAR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PACCAR Inc. paid investors a total of $29.52/share in dividends over the 20 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 1.28/share, we calculate that PCAR has a current yield of approximately 1.64%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.28 against the original $8.31/share purchase price. This works out to a yield on cost of 19.74%.
One more piece of investment wisdom to leave you with:
“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” — Seth Klarman
