“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 Harley-Davidson Inc (NYSE: HOG)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 05/23/2014 |
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| End date: | 05/22/2019 | ||||
| Start price/share: | $70.71 | ||||
| End price/share: | $35.18 | ||||
| Starting shares: | 141.42 | ||||
| Ending shares: | 162.42 | ||||
| Dividends reinvested/share: | $6.78 | ||||
| Total return: | -42.86% | ||||
| Average annual return: | -10.59% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,713.87 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -10.59%. This would have turned a $10K investment made 5 years ago into $5,713.87 today (as of 05/22/2019). On a total return basis, that’s a result of -42.86% (something to think about: how might HOG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Harley-Davidson Inc paid investors a total of $6.78/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 1.5/share, we calculate that HOG has a current yield of approximately 4.26%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.5 against the original $70.71/share purchase price. This works out to a yield on cost of 6.02%.
One more investment quote to leave you with:
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently.” — Jack Bogle
