“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 Comerica, Inc. (NYSE: CMA)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 04/23/2015 |
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| End date: | 04/22/2020 | ||||
| Start price/share: | $46.17 | ||||
| End price/share: | $30.45 | ||||
| Starting shares: | 216.59 | ||||
| Ending shares: | 245.64 | ||||
| Dividends reinvested/share: | $7.81 | ||||
| Total return: | -25.20% | ||||
| Average annual return: | -5.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,479.47 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -5.64%. This would have turned a $10K investment made 5 years ago into $7,479.47 today (as of 04/22/2020). On a total return basis, that’s a result of -25.20% (something to think about: how might CMA shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Comerica, Inc. paid investors a total of $7.81/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 2.72/share, we calculate that CMA has a current yield of approximately 8.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.72 against the original $46.17/share purchase price. This works out to a yield on cost of 19.34%.
One more piece of investment wisdom to leave you with:
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” — George Soros
