“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Halliburton Company (NYSE: HAL)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 03/12/2014 |
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| End date: | 03/11/2019 | ||||
| Start price/share: | $55.39 | ||||
| End price/share: | $27.89 | ||||
| Starting shares: | 180.54 | ||||
| Ending shares: | 196.28 | ||||
| Dividends reinvested/share: | $3.54 | ||||
| Total return: | -45.26% | ||||
| Average annual return: | -11.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,475.12 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -11.35%. This would have turned a $10K investment made 5 years ago into $5,475.12 today (as of 03/11/2019). On a total return basis, that’s a result of -45.26% (something to think about: how might HAL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Halliburton Company paid investors a total of $3.54/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 .72/share, we calculate that HAL has a current yield of approximately 2.58%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $55.39/share purchase price. This works out to a yield on cost of 4.66%.
More investment wisdom to ponder:
“In the long run, we are all dead.” — John Maynard Keynes
