“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 Analog Devices Inc (NASD: ADI)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 07/03/2014 |
|
|||
| End date: | 07/02/2019 | ||||
| Start price/share: | $54.83 | ||||
| End price/share: | $113.51 | ||||
| Starting shares: | 182.38 | ||||
| Ending shares: | 205.68 | ||||
| Dividends reinvested/share: | $8.82 | ||||
| Total return: | 133.47% | ||||
| Average annual return: | 18.48% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,346.69 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 18.48%. This would have turned a $10K investment made 5 years ago into $23,346.69 today (as of 07/02/2019). On a total return basis, that’s a result of 133.47% (something to think about: how might ADI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Analog Devices Inc paid investors a total of $8.82/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 2.16/share, we calculate that ADI has a current yield of approximately 1.90%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.16 against the original $54.83/share purchase price. This works out to a yield on cost of 3.47%.
Here’s one more great investment quote before you go:
“When everyone is going right, look left.” — Sam Zell
