“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a five year period?
Today, let’s look backwards in time to 2014, and take a look at what happened to investors who asked that very question about Assurant Inc (NYSE: AIZ), by taking a look at the investment outcome over a five year holding period.
| Start date: | 04/30/2014 |
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| End date: | 04/29/2019 | ||||
| Start price/share: | $67.41 | ||||
| End price/share: | $94.35 | ||||
| Starting shares: | 148.35 | ||||
| Ending shares: | 165.06 | ||||
| Dividends reinvested/share: | $9.24 | ||||
| Total return: | 55.73% | ||||
| Average annual return: | 9.26% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $15,570.62 | ||||
The above analysis shows the five year investment result worked out well, with an annualized rate of return of 9.26%. This would have turned a $10K investment made 5 years ago into $15,570.62 today (as of 04/29/2019). On a total return basis, that’s a result of 55.73% (something to think about: how might AIZ shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Assurant Inc paid investors a total of $9.24/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 2.4/share, we calculate that AIZ has a current yield of approximately 2.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.4 against the original $67.41/share purchase price. This works out to a yield on cost of 3.77%.
One more piece of investment wisdom to leave you with:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
