“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 Campbell Soup Co (NYSE: CPB)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 03/27/2015 |
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| End date: | 03/26/2020 | ||||
| Start price/share: | $45.89 | ||||
| End price/share: | $43.59 | ||||
| Starting shares: | 217.91 | ||||
| Ending shares: | 251.61 | ||||
| Dividends reinvested/share: | $6.77 | ||||
| Total return: | 9.68% | ||||
| Average annual return: | 1.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,965.80 | ||||
The above analysis shows the five year investment result worked out as follows, with an annualized rate of return of 1.86%. This would have turned a $10K investment made 5 years ago into $10,965.80 today (as of 03/26/2020). On a total return basis, that’s a result of 9.68% (something to think about: how might CPB shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Campbell Soup Co paid investors a total of $6.77/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 1.4/share, we calculate that CPB has a current yield of approximately 3.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $45.89/share purchase price. This works out to a yield on cost of 6.99%.
One more piece of investment wisdom to leave you with:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” — Warren Buffett
