“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 AT&T Inc (NYSE: T)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 05/19/2015 |
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| End date: | 05/18/2020 | ||||
| Start price/share: | $34.37 | ||||
| End price/share: | $29.45 | ||||
| Starting shares: | 290.95 | ||||
| Ending shares: | 383.54 | ||||
| Dividends reinvested/share: | $9.90 | ||||
| Total return: | 12.95% | ||||
| Average annual return: | 2.46% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,292.77 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 2.46%. This would have turned a $10K investment made 5 years ago into $11,292.77 today (as of 05/18/2020). On a total return basis, that’s a result of 12.95% (something to think about: how might T shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AT&T Inc paid investors a total of $9.90/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 2.08/share, we calculate that T has a current yield of approximately 7.06%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.08 against the original $34.37/share purchase price. This works out to a yield on cost of 20.54%.
Another great investment quote to think about:
“Behind every stock is a company. Find out what it’s doing.” — Peter Lynch
