“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 Gilead Sciences Inc (NASD: GILD)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 05/01/2015 |
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| End date: | 04/30/2020 | ||||
| Start price/share: | $105.01 | ||||
| End price/share: | $84.00 | ||||
| Starting shares: | 95.23 | ||||
| Ending shares: | 109.78 | ||||
| Dividends reinvested/share: | $10.69 | ||||
| Total return: | -7.78% | ||||
| Average annual return: | -1.61% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,220.10 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -1.61%. This would have turned a $10K investment made 5 years ago into $9,220.10 today (as of 04/30/2020). On a total return basis, that’s a result of -7.78% (something to think about: how might GILD shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Gilead Sciences Inc paid investors a total of $10.69/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 2.72/share, we calculate that GILD has a current yield of approximately 3.24%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.72 against the original $105.01/share purchase price. This works out to a yield on cost of 3.09%.
One more investment quote to leave you with:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
