“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 CF Industries Holdings Inc (NYSE: CF)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 07/22/2014 |
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| End date: | 07/19/2019 | ||||
| Start price/share: | $50.77 | ||||
| End price/share: | $47.16 | ||||
| Starting shares: | 196.97 | ||||
| Ending shares: | 230.59 | ||||
| Dividends reinvested/share: | $6.00 | ||||
| Total return: | 8.75% | ||||
| Average annual return: | 1.69% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,873.05 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 1.69%. This would have turned a $10K investment made 5 years ago into $10,873.05 today (as of 07/19/2019). On a total return basis, that’s a result of 8.75% (something to think about: how might CF shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CF Industries Holdings Inc paid investors a total of $6.00/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 1.2/share, we calculate that CF 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 1.2 against the original $50.77/share purchase price. This works out to a yield on cost of 5.00%.
More investment wisdom to ponder:
“Sentimentality about an investments leads to lack of discipline.” — Sam Zell
