“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 Alaska Air Group, Inc. (NYSE: ALK)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 05/08/2015 |
|
|||
| End date: | 05/07/2020 | ||||
| Start price/share: | $66.27 | ||||
| End price/share: | $28.25 | ||||
| Starting shares: | 150.90 | ||||
| Ending shares: | 164.48 | ||||
| Dividends reinvested/share: | $5.95 | ||||
| Total return: | -53.54% | ||||
| Average annual return: | -14.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $4,645.16 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -14.21%. This would have turned a $10K investment made 5 years ago into $4,645.16 today (as of 05/07/2020). On a total return basis, that’s a result of -53.54% (something to think about: how might ALK shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Alaska Air Group, Inc. paid investors a total of $5.95/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 1.5/share, we calculate that ALK has a current yield of approximately 5.31%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.5 against the original $66.27/share purchase price. This works out to a yield on cost of 8.01%.
One more piece of investment wisdom to leave you with:
“The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.” — Bruce Kovner
