“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 Macy’s Inc (NYSE: M)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 01/26/2015 |
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| End date: | 01/23/2020 | ||||
| Start price/share: | $66.08 | ||||
| End price/share: | $17.07 | ||||
| Starting shares: | 151.33 | ||||
| Ending shares: | 194.66 | ||||
| Dividends reinvested/share: | $7.42 | ||||
| Total return: | -66.77% | ||||
| Average annual return: | -19.80% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $3,321.98 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -19.80%. This would have turned a $10K investment made 5 years ago into $3,321.98 today (as of 01/23/2020). On a total return basis, that’s a result of -66.77% (something to think about: how might M shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Macy’s Inc paid investors a total of $7.42/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 1.51/share, we calculate that M has a current yield of approximately 8.85%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.51 against the original $66.08/share purchase price. This works out to a yield on cost of 13.39%.
Here’s one more great investment quote before you go:
“Anyone who is not investing now is missing a tremendous opportunity.” — Carlos Slim
