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“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 State Street Corp. (NYSE: STT)? Today, we examine the outcome of a five year investment into the stock back in 2014.

Start date: 07/18/2014
$10,000

07/18/2014
$8,667

07/17/2019
End date: 07/17/2019
Start price/share: $69.90
End price/share: $54.59
Starting shares: 143.06
Ending shares: 158.75
Dividends reinvested/share: $7.68
Total return: -13.34%
Average annual return: -2.82%
Starting investment: $10,000.00
Ending investment: $8,667.31

As shown above, the five year investment result worked out poorly, with an annualized rate of return of -2.82%. This would have turned a $10K investment made 5 years ago into $8,667.31 today (as of 07/17/2019). On a total return basis, that’s a result of -13.34% (something to think about: how might STT shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that State Street Corp. paid investors a total of $7.68/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 1.88/share, we calculate that STT has a current yield of approximately 3.44%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.88 against the original $69.90/share purchase price. This works out to a yield on cost of 4.92%.

One more piece of investment wisdom to leave you with:
“If you can follow only one bit of data, follow the earnings.” — Peter Lynch