“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 Cummins, Inc. (NYSE: CMI)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 07/21/2014 |
|
|||
| End date: | 07/18/2019 | ||||
| Start price/share: | $153.00 | ||||
| End price/share: | $167.94 | ||||
| Starting shares: | 65.36 | ||||
| Ending shares: | 75.51 | ||||
| Dividends reinvested/share: | $20.00 | ||||
| Total return: | 26.80% | ||||
| Average annual return: | 4.87% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,680.70 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 4.87%. This would have turned a $10K investment made 5 years ago into $12,680.70 today (as of 07/18/2019). On a total return basis, that’s a result of 26.80% (something to think about: how might CMI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cummins, Inc. paid investors a total of $20.00/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 5.244/share, we calculate that CMI has a current yield of approximately 3.12%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.244 against the original $153.00/share purchase price. This works out to a yield on cost of 2.04%.
Another great investment quote to think about:
“In investing, what is comfortable is rarely profitable.” — Robert Arnott
