“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 Morgan Stanley (NYSE: MS)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 03/03/2015 |
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| End date: | 03/02/2020 | ||||
| Start price/share: | $35.82 | ||||
| End price/share: | $46.48 | ||||
| Starting shares: | 279.17 | ||||
| Ending shares: | 312.45 | ||||
| Dividends reinvested/share: | $4.80 | ||||
| Total return: | 45.23% | ||||
| Average annual return: | 7.74% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,520.23 | ||||
As shown above, the five year investment result worked out well, with an annualized rate of return of 7.74%. This would have turned a $10K investment made 5 years ago into $14,520.23 today (as of 03/02/2020). On a total return basis, that’s a result of 45.23% (something to think about: how might MS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Morgan Stanley paid investors a total of $4.80/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 MS has a current yield of approximately 3.01%. 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 $35.82/share purchase price. This works out to a yield on cost of 8.40%.
One more investment quote to leave you with:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett
