“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a decade-long period?
Today, let’s look backwards in time to 2009, and take a look at what happened to investors who asked that very question about Packaging Corp of America (NYSE: PKG), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 05/14/2009 |
|
|||
| End date: | 05/13/2019 | ||||
| Start price/share: | $15.52 | ||||
| End price/share: | $96.27 | ||||
| Starting shares: | 644.33 | ||||
| Ending shares: | 856.76 | ||||
| Dividends reinvested/share: | $16.83 | ||||
| Total return: | 724.80% | ||||
| Average annual return: | 23.48% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $82,455.03 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 23.48%. This would have turned a $10K investment made 10 years ago into $82,455.03 today (as of 05/13/2019). On a total return basis, that’s a result of 724.80% (something to think about: how might PKG shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Packaging Corp of America paid investors a total of $16.83/share in dividends over the 10 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 3.16/share, we calculate that PKG has a current yield of approximately 3.28%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.16 against the original $15.52/share purchase price. This works out to a yield on cost of 21.13%.
One more piece of investment wisdom to leave you with:
“If I’ve learned one thing in this life it’s this: even if you lose, don’t lose the lesson.” — Daymond John
