“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 MetLife Inc (NYSE: MET)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 04/20/2015 |
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| End date: | 04/17/2020 | ||||
| Start price/share: | $45.20 | ||||
| End price/share: | $33.06 | ||||
| Starting shares: | 221.24 | ||||
| Ending shares: | 262.29 | ||||
| Dividends reinvested/share: | $7.72 | ||||
| Total return: | -13.29% | ||||
| Average annual return: | -2.81% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,672.45 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -2.81%. This would have turned a $10K investment made 5 years ago into $8,672.45 today (as of 04/17/2020). On a total return basis, that’s a result of -13.29% (something to think about: how might MET shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that MetLife Inc paid investors a total of $7.72/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 1.76/share, we calculate that MET has a current yield of approximately 5.32%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.76 against the original $45.20/share purchase price. This works out to a yield on cost of 11.77%.
More investment wisdom to ponder:
“A risk-reward ratio is important, but so is an aggravation-satisfaction ratio.” — Muriel Siebert
