“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 Apache Corp (NYSE: APA)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 07/23/2014 |
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| End date: | 07/22/2019 | ||||
| Start price/share: | $103.48 | ||||
| End price/share: | $23.86 | ||||
| Starting shares: | 96.64 | ||||
| Ending shares: | 107.87 | ||||
| Dividends reinvested/share: | $5.00 | ||||
| Total return: | -74.26% | ||||
| Average annual return: | -23.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $2,574.12 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -23.77%. This would have turned a $10K investment made 5 years ago into $2,574.12 today (as of 07/22/2019). On a total return basis, that’s a result of -74.26% (something to think about: how might APA shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Apache Corp paid investors a total of $5.00/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/share, we calculate that APA has a current yield of approximately 4.19%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $103.48/share purchase price. This works out to a yield on cost of 4.05%.
One more investment quote to leave you with:
“The individual investor should act consistently as an investor and not as a speculator.” — Benjamin Graham
