“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 Pfizer Inc (NYSE: PFE)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 03/25/2014 |
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| End date: | 03/22/2019 | ||||
| Start price/share: | $31.82 | ||||
| End price/share: | $41.85 | ||||
| Starting shares: | 314.27 | ||||
| Ending shares: | 375.80 | ||||
| Dividends reinvested/share: | $6.10 | ||||
| Total return: | 57.27% | ||||
| Average annual return: | 9.49% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $15,727.39 | ||||
The above analysis shows the five year investment result worked out well, with an annualized rate of return of 9.49%. This would have turned a $10K investment made 5 years ago into $15,727.39 today (as of 03/22/2019). On a total return basis, that’s a result of 57.27% (something to think about: how might PFE shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Pfizer Inc paid investors a total of $6.10/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 1.44/share, we calculate that PFE has a current yield of approximately 3.44%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.44 against the original $31.82/share purchase price. This works out to a yield on cost of 10.81%.
One more piece of investment wisdom to leave you with:
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” — Benjamin Graham
