“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 Franklin Resources Inc (NYSE: BEN)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 06/23/2015 |
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| End date: | 06/22/2020 | ||||
| Start price/share: | $51.16 | ||||
| End price/share: | $21.69 | ||||
| Starting shares: | 195.47 | ||||
| Ending shares: | 242.41 | ||||
| Dividends reinvested/share: | $7.32 | ||||
| Total return: | -47.42% | ||||
| Average annual return: | -12.06% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,257.50 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -12.06%. This would have turned a $10K investment made 5 years ago into $5,257.50 today (as of 06/22/2020). On a total return basis, that’s a result of -47.42% (something to think about: how might BEN shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Franklin Resources Inc paid investors a total of $7.32/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 1.08/share, we calculate that BEN has a current yield of approximately 4.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.08 against the original $51.16/share purchase price. This works out to a yield on cost of 9.73%.
More investment wisdom to ponder:
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently.” — Jack Bogle
