“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 TE Connectivity Ltd (NYSE: TEL)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 03/20/2015 |
|
|||
| End date: | 03/19/2020 | ||||
| Start price/share: | $73.42 | ||||
| End price/share: | $54.60 | ||||
| Starting shares: | 136.20 | ||||
| Ending shares: | 150.99 | ||||
| Dividends reinvested/share: | $8.00 | ||||
| Total return: | -17.56% | ||||
| Average annual return: | -3.79% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,242.43 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -3.79%. This would have turned a $10K investment made 5 years ago into $8,242.43 today (as of 03/19/2020). On a total return basis, that’s a result of -17.56% (something to think about: how might TEL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that TE Connectivity Ltd paid investors a total of $8.00/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 1.84/share, we calculate that TEL has a current yield of approximately 3.37%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.84 against the original $73.42/share purchase price. This works out to a yield on cost of 4.59%.
One more piece of investment wisdom to leave you with:
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” — Seth Klarman
