“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 Concho Resources Inc (NYSE: CXO)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 06/11/2014 |
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| End date: | 06/10/2019 | ||||
| Start price/share: | $137.46 | ||||
| End price/share: | $99.50 | ||||
| Starting shares: | 72.75 | ||||
| Ending shares: | 72.91 | ||||
| Dividends reinvested/share: | $0.25 | ||||
| Total return: | -27.45% | ||||
| Average annual return: | -6.22% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,253.56 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -6.22%. This would have turned a $10K investment made 5 years ago into $7,253.56 today (as of 06/10/2019). On a total return basis, that’s a result of -27.45% (something to think about: how might CXO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Concho Resources Inc paid investors a total of $0.25/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 .5/share, we calculate that CXO has a current yield of approximately 0.50%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .5 against the original $137.46/share purchase price. This works out to a yield on cost of 0.36%.
More investment wisdom to ponder:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett
