“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 Nike (NYSE: NKE)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 10/22/2014 |
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| End date: | 10/21/2019 | ||||
| Start price/share: | $44.93 | ||||
| End price/share: | $96.22 | ||||
| Starting shares: | 222.57 | ||||
| Ending shares: | 235.77 | ||||
| Dividends reinvested/share: | $3.60 | ||||
| Total return: | 126.86% | ||||
| Average annual return: | 17.80% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $22,684.36 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 17.80%. This would have turned a $10K investment made 5 years ago into $22,684.36 today (as of 10/21/2019). On a total return basis, that’s a result of 126.86% (something to think about: how might NKE shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Nike paid investors a total of $3.60/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 .88/share, we calculate that NKE has a current yield of approximately 0.91%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .88 against the original $44.93/share purchase price. This works out to a yield on cost of 2.03%.
More investment wisdom to ponder:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
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