“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 2016, investors considering an investment into shares of Procter & Gamble Company (NYSE: PG) 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: | 01/26/2016 |
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| End date: | 01/25/2021 | ||||
| Start price/share: | $78.81 | ||||
| End price/share: | $132.24 | ||||
| Starting shares: | 126.89 | ||||
| Ending shares: | 147.10 | ||||
| Dividends reinvested/share: | $14.46 | ||||
| Total return: | 94.52% | ||||
| Average annual return: | 14.23% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $19,456.25 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 14.23%. This would have turned a $10K investment made 5 years ago into $19,456.25 today (as of 01/25/2021). On a total return basis, that’s a result of 94.52% (something to think about: how might PG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 5 years, Procter & Gamble Company has paid $14.46/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 3.1628/share, we calculate that PG has a current yield of approximately 2.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.1628 against the original $78.81/share purchase price. This works out to a yield on cost of 3.03%.
Here’s one more great investment quote before you go:
“As time goes on, I get more and more convinced that the right method of investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.” — John Maynard Keynes
