“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 Leggett & Platt, Inc. (NYSE: LEG)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 04/06/2015 |
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| End date: | 04/02/2020 | ||||
| Start price/share: | $45.81 | ||||
| End price/share: | $24.21 | ||||
| Starting shares: | 218.29 | ||||
| Ending shares: | 256.72 | ||||
| Dividends reinvested/share: | $7.19 | ||||
| Total return: | -37.85% | ||||
| Average annual return: | -9.08% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,216.18 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -9.08%. This would have turned a $10K investment made 5 years ago into $6,216.18 today (as of 04/02/2020). On a total return basis, that’s a result of -37.85% (something to think about: how might LEG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Leggett & Platt, Inc. paid investors a total of $7.19/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 1.6/share, we calculate that LEG has a current yield of approximately 6.61%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $45.81/share purchase price. This works out to a yield on cost of 14.43%.
More investment wisdom to ponder:
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” — George Soros
