“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 Exxon Mobil Corp (NYSE: XOM)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 11/19/2014 |
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| End date: | 11/18/2019 | ||||
| Start price/share: | $95.61 | ||||
| End price/share: | $68.52 | ||||
| Starting shares: | 104.59 | ||||
| Ending shares: | 126.98 | ||||
| Dividends reinvested/share: | $15.58 | ||||
| Total return: | -13.00% | ||||
| Average annual return: | -2.75% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,698.57 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -2.75%. This would have turned a $10K investment made 5 years ago into $8,698.57 today (as of 11/18/2019). On a total return basis, that’s a result of -13.00% (something to think about: how might XOM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Exxon Mobil Corp paid investors a total of $15.58/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 3.48/share, we calculate that XOM has a current yield of approximately 5.08%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.48 against the original $95.61/share purchase price. This works out to a yield on cost of 5.31%.
More investment wisdom to ponder:
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently.” — Jack Bogle
