“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a five year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Avery Dennison Corp (NYSE: AVY) back in 2019: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.
| Start date: | 10/10/2019 |
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| End date: | 10/09/2024 | ||||
| Start price/share: | $111.30 | ||||
| End price/share: | $215.66 | ||||
| Starting shares: | 89.85 | ||||
| Ending shares: | 97.50 | ||||
| Dividends reinvested/share: | $14.28 | ||||
| Total return: | 110.28% | ||||
| Average annual return: | 16.02% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,030.09 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 16.02%. This would have turned a $10K investment made 5 years ago into $21,030.09 today (as of 10/09/2024). On a total return basis, that’s a result of 110.28% (something to think about: how might AVY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Avery Dennison Corp paid investors a total of $14.28/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 3.52/share, we calculate that AVY has a current yield of approximately 1.63%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.52 against the original $111.30/share purchase price. This works out to a yield on cost of 1.46%.
Another great investment quote to think about:
“Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.” — Peter Lynch
