“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?
A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Sysco Corp (NYSE: SYY) back in 2015. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 06/17/2015 |
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| End date: | 06/16/2020 | ||||
| Start price/share: | $37.31 | ||||
| End price/share: | $56.53 | ||||
| Starting shares: | 268.02 | ||||
| Ending shares: | 304.82 | ||||
| Dividends reinvested/share: | $7.06 | ||||
| Total return: | 72.32% | ||||
| Average annual return: | 11.49% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $17,230.94 | ||||
The above analysis shows the five year investment result worked out quite well, with an annualized rate of return of 11.49%. This would have turned a $10K investment made 5 years ago into $17,230.94 today (as of 06/16/2020). On a total return basis, that’s a result of 72.32% (something to think about: how might SYY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Sysco Corp paid investors a total of $7.06/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 1.8/share, we calculate that SYY has a current yield of approximately 3.18%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.8 against the original $37.31/share purchase price. This works out to a yield on cost of 8.52%.
Another great investment quote to think about:
“All intelligent investing is value investing: acquiring more that you are paying for. You must value the business in order to value the stock.” — Charlie Munger
