“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 BorgWarner Inc (NYSE: BWA)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 05/14/2015 |
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| End date: | 05/13/2020 | ||||
| Start price/share: | $61.66 | ||||
| End price/share: | $26.34 | ||||
| Starting shares: | 162.18 | ||||
| Ending shares: | 174.84 | ||||
| Dividends reinvested/share: | $3.04 | ||||
| Total return: | -53.95% | ||||
| Average annual return: | -14.36% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $4,604.67 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -14.36%. This would have turned a $10K investment made 5 years ago into $4,604.67 today (as of 05/13/2020). On a total return basis, that’s a result of -53.95% (something to think about: how might BWA shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that BorgWarner Inc paid investors a total of $3.04/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 .68/share, we calculate that BWA has a current yield of approximately 2.58%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .68 against the original $61.66/share purchase price. This works out to a yield on cost of 4.18%.
One more piece of investment wisdom to leave you with:
“The stock market is filled with individuals who know the price of everything, but the value of nothing.” — Phillip Fisher
