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“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 AvalonBay Communities, Inc. (NYSE: AVB)? Today, we examine the outcome of a five year investment into the stock back in 2015.

Start date: 04/23/2015


End date: 04/22/2020
Start price/share: $171.23
End price/share: $159.84
Starting shares: 58.40
Ending shares: 68.30
Dividends reinvested/share: $28.38
Total return: 9.17%
Average annual return: 1.77%
Starting investment: $10,000.00
Ending investment: $10,917.41

As shown above, the five year investment result worked out as follows, with an annualized rate of return of 1.77%. This would have turned a $10K investment made 5 years ago into $10,917.41 today (as of 04/22/2020). On a total return basis, that’s a result of 9.17% (something to think about: how might AVB shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that AvalonBay Communities, Inc. paid investors a total of $28.38/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 6.36/share, we calculate that AVB has a current yield of approximately 3.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.36 against the original $171.23/share purchase price. This works out to a yield on cost of 2.32%.

Here’s one more great investment quote before you go:
“An investment in knowledge pays the best interest.” — Benjamin Franklin