“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 Alliance Data Systems Corp. (NYSE: ADS)? Today, we examine the outcome of a five year investment into the stock back in 2014.
|Average annual return:||-16.69%|
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -16.69%. This would have turned a $10K investment made 5 years ago into $4,017.17 today (as of 12/12/2019). On a total return basis, that’s a result of -59.82% (something to think about: how might ADS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Alliance Data Systems Corp. paid investors a total of $7.40/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 2.52/share, we calculate that ADS has a current yield of approximately 2.31%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.52 against the original $282.49/share purchase price. This works out to a yield on cost of 0.82%.
Another great investment quote to think about:
“Go for a business that any idiot can run â€“ because sooner or later, any idiot probably is going to run it.” — Peter Lynch