“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 Flowserve Corp (NYSE: FLS)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 04/28/2015 |
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| End date: | 04/27/2020 | ||||
| Start price/share: | $57.94 | ||||
| End price/share: | $27.10 | ||||
| Starting shares: | 172.59 | ||||
| Ending shares: | 188.33 | ||||
| Dividends reinvested/share: | $3.78 | ||||
| Total return: | -48.96% | ||||
| Average annual return: | -12.58% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,103.80 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -12.58%. This would have turned a $10K investment made 5 years ago into $5,103.80 today (as of 04/27/2020). On a total return basis, that’s a result of -48.96% (something to think about: how might FLS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Flowserve Corp paid investors a total of $3.78/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 .8/share, we calculate that FLS has a current yield of approximately 2.95%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .8 against the original $57.94/share purchase price. This works out to a yield on cost of 5.09%.
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
