“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 Cimarex Energy Co (NYSE: XEC)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 11/14/2014 |
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| End date: | 11/13/2019 | ||||
| Start price/share: | $117.56 | ||||
| End price/share: | $45.77 | ||||
| Starting shares: | 85.06 | ||||
| Ending shares: | 87.58 | ||||
| Dividends reinvested/share: | $2.52 | ||||
| Total return: | -59.92% | ||||
| Average annual return: | -16.71% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $4,008.34 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -16.71%. This would have turned a $10K investment made 5 years ago into $4,008.34 today (as of 11/13/2019). On a total return basis, that’s a result of -59.92% (something to think about: how might XEC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cimarex Energy Co paid investors a total of $2.52/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 .8/share, we calculate that XEC has a current yield of approximately 1.75%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .8 against the original $117.56/share purchase price. This works out to a yield on cost of 1.49%.
One more investment quote to leave you with:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer
