“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
A critical pearl of wisdom from Warren Buffett teaches us that with any potential stock investment we may make, as soon as our buy order is filled we will have a choice: to remain a co-owner of that company for the long haul, or to react to the inevitable short-term ups and downs that the stock market is famous for (sometimes sharp ups and downs).
The reality of this choice forces us to challenge our confidence in any given company we might invest into, and keep our eyes on the long-term time horizon. The market may go up and down the interim, but over a five year holding period, will the investment succeed?
Back in 2014, investors may have been asking themselves that very question about Broadcom Inc (NASD: AVGO). Let’s examine what would have happened over a five year holding period, had you invested in AVGO shares back in 2014 and held on.
| Start date: | 10/22/2014 |
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| End date: | 10/21/2019 | ||||
| Start price/share: | $80.86 | ||||
| End price/share: | $289.57 | ||||
| Starting shares: | 123.67 | ||||
| Ending shares: | 137.04 | ||||
| Dividends reinvested/share: | $23.42 | ||||
| Total return: | 296.82% | ||||
| Average annual return: | 31.74% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $39,681.52 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 31.74%. This would have turned a $10K investment made 5 years ago into $39,681.52 today (as of 10/21/2019). On a total return basis, that’s a result of 296.82% (something to think about: how might AVGO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 5 years, Broadcom Inc has paid $23.42/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 10.6/share, we calculate that AVGO has a current yield of approximately 3.66%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 10.6 against the original $80.86/share purchase price. This works out to a yield on cost of 4.53%.
One more piece of investment wisdom to leave you with:
“It’s not always easy to do what’s not popular, but that’s where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized.” — John Neff
