“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 Archer Daniels Midland Co. (NYSE: ADM)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 07/11/2014 |
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| End date: | 07/10/2019 | ||||
| Start price/share: | $47.85 | ||||
| End price/share: | $41.80 | ||||
| Starting shares: | 208.99 | ||||
| Ending shares: | 240.80 | ||||
| Dividends reinvested/share: | $6.12 | ||||
| Total return: | 0.66% | ||||
| Average annual return: | 0.13% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,065.17 | ||||
The above analysis shows the five year investment result worked out as follows, with an annualized rate of return of 0.13%. This would have turned a $10K investment made 5 years ago into $10,065.17 today (as of 07/10/2019). On a total return basis, that’s a result of 0.66% (something to think about: how might ADM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Archer Daniels Midland Co. paid investors a total of $6.12/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 1.4/share, we calculate that ADM has a current yield of approximately 3.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $47.85/share purchase price. This works out to a yield on cost of 7.00%.
Another great investment quote to think about:
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger
