“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 3M Co (NYSE: MMM)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 11/13/2014 |
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| End date: | 11/12/2019 | ||||
| Start price/share: | $158.35 | ||||
| End price/share: | $170.84 | ||||
| Starting shares: | 63.15 | ||||
| Ending shares: | 72.06 | ||||
| Dividends reinvested/share: | $23.86 | ||||
| Total return: | 23.11% | ||||
| Average annual return: | 4.25% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,313.47 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 4.25%. This would have turned a $10K investment made 5 years ago into $12,313.47 today (as of 11/12/2019). On a total return basis, that’s a result of 23.11% (something to think about: how might MMM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that 3M Co paid investors a total of $23.86/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 5.76/share, we calculate that MMM has a current yield of approximately 3.37%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.76 against the original $158.35/share purchase price. This works out to a yield on cost of 2.13%.
Another great investment quote to think about:
“Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world.” — Charlie Munger
