“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 Visa Inc (NYSE: V)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 02/02/2015 |
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| End date: | 01/30/2020 | ||||
| Start price/share: | $63.84 | ||||
| End price/share: | $208.21 | ||||
| Starting shares: | 156.64 | ||||
| Ending shares: | 162.13 | ||||
| Dividends reinvested/share: | $3.71 | ||||
| Total return: | 237.57% | ||||
| Average annual return: | 27.58% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $33,754.63 | ||||
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 27.58%. This would have turned a $10K investment made 5 years ago into $33,754.63 today (as of 01/30/2020). On a total return basis, that’s a result of 237.57% (something to think about: how might V shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Visa Inc paid investors a total of $3.71/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 1.2/share, we calculate that V has a current yield of approximately 0.58%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.2 against the original $63.84/share purchase price. This works out to a yield on cost of 0.91%.
Another great investment quote to think about:
“As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.” — Benjamin Graham
