“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Paychex Inc (NASD: PAYX)? Today, we examine the outcome of a ten year investment into the stock back in 2009.
| Start date: | 07/09/2009 |
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| End date: | 07/08/2019 | ||||
| Start price/share: | $24.21 | ||||
| End price/share: | $84.85 | ||||
| Starting shares: | 413.05 | ||||
| Ending shares: | 594.83 | ||||
| Dividends reinvested/share: | $15.86 | ||||
| Total return: | 404.72% | ||||
| Average annual return: | 17.57% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $50,484.47 | ||||
The above analysis shows the ten year investment result worked out exceptionally well, with an annualized rate of return of 17.57%. This would have turned a $10K investment made 10 years ago into $50,484.47 today (as of 07/08/2019). On a total return basis, that’s a result of 404.72% (something to think about: how might PAYX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Paychex Inc paid investors a total of $15.86/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 2.48/share, we calculate that PAYX has a current yield of approximately 2.92%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $24.21/share purchase price. This works out to a yield on cost of 12.06%.
One more piece of investment wisdom to leave you with:
“The stock market is filled with individuals who know the price of everything, but the value of nothing.” — Phillip Fisher
