“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: | 02/24/2015 |
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| End date: | 02/21/2020 | ||||
| Start price/share: | $62.10 | ||||
| End price/share: | $16.23 | ||||
| Starting shares: | 161.03 | ||||
| Ending shares: | 207.14 | ||||
| Dividends reinvested/share: | $7.42 | ||||
| Total return: | -66.38% | ||||
| Average annual return: | -19.61% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $3,361.47 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -19.61%. This would have turned a $10K investment made 5 years ago into $3,361.47 today (as of 02/21/2020). On a total return basis, that’s a result of -66.38% (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 9.30%. 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 $62.10/share purchase price. This works out to a yield on cost of 14.98%.
Here’s one more great investment quote before you go:
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffett
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