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“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 Western Digital Corp (NASD: WDC)? Today, we examine the outcome of a five year investment into the stock back in 2014.

Start date: 03/26/2014
$10,000

03/26/2014
$6,144

03/25/2019
End date: 03/25/2019
Start price/share: $89.33
End price/share: $47.89
Starting shares: 111.94
Ending shares: 128.32
Dividends reinvested/share: $9.50
Total return: -38.55%
Average annual return: -9.28%
Starting investment: $10,000.00
Ending investment: $6,144.91

As shown above, the five year investment result worked out poorly, with an annualized rate of return of -9.28%. This would have turned a $10K investment made 5 years ago into $6,144.91 today (as of 03/25/2019). On a total return basis, that’s a result of -38.55% (something to think about: how might WDC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Western Digital Corp paid investors a total of $9.50/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 2/share, we calculate that WDC has a current yield of approximately 4.18%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $89.33/share purchase price. This works out to a yield on cost of 4.68%.

One more investment quote to leave you with:
“Know what you own and why you own it.” — Peter Lynch