“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 Pfizer Inc (NYSE: PFE)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 03/16/2015 |
|
|||
| End date: | 03/13/2020 | ||||
| Start price/share: | $34.44 | ||||
| End price/share: | $32.71 | ||||
| Starting shares: | 290.36 | ||||
| Ending shares: | 348.26 | ||||
| Dividends reinvested/share: | $6.50 | ||||
| Total return: | 13.92% | ||||
| Average annual return: | 2.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,390.75 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 2.64%. This would have turned a $10K investment made 5 years ago into $11,390.75 today (as of 03/13/2020). On a total return basis, that’s a result of 13.92% (something to think about: how might PFE shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Pfizer Inc paid investors a total of $6.50/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 1.52/share, we calculate that PFE has a current yield of approximately 4.65%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.52 against the original $34.44/share purchase price. This works out to a yield on cost of 13.50%.
Another great investment quote to think about:
“Every day that you’re not selling an asset in your portfolio, you’re choosing to buy it.” — Sam Zell
