“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: | 12/16/2014 |
|
|||
| End date: | 12/13/2019 | ||||
| Start price/share: | $159.05 | ||||
| End price/share: | $168.79 | ||||
| Starting shares: | 62.87 | ||||
| Ending shares: | 71.98 | ||||
| Dividends reinvested/share: | $24.44 | ||||
| Total return: | 21.50% | ||||
| Average annual return: | 3.98% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,152.24 | ||||
The above analysis shows the five year investment result worked out as follows, with an annualized rate of return of 3.98%. This would have turned a $10K investment made 5 years ago into $12,152.24 today (as of 12/13/2019). On a total return basis, that’s a result of 21.50% (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 $24.44/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 3.41%. 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 $159.05/share purchase price. This works out to a yield on cost of 2.14%.
More investment wisdom to ponder:
“Value investing is at its core the marriage of a contrarian streak and a calculator.” — Seth Klarman
