“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 Exxon Mobil Corp (NYSE: XOM)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 07/21/2015 |
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| End date: | 07/20/2020 | ||||
| Start price/share: | $81.66 | ||||
| End price/share: | $42.50 | ||||
| Starting shares: | 122.46 | ||||
| Ending shares: | 151.38 | ||||
| Dividends reinvested/share: | $15.90 | ||||
| Total return: | -35.67% | ||||
| Average annual return: | -8.44% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,433.15 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -8.44%. This would have turned a $10K investment made 5 years ago into $6,433.15 today (as of 07/20/2020). On a total return basis, that’s a result of -35.67% (something to think about: how might XOM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Exxon Mobil Corp paid investors a total of $15.90/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 3.48/share, we calculate that XOM has a current yield of approximately 8.19%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.48 against the original $81.66/share purchase price. This works out to a yield on cost of 10.03%.
One more piece of investment wisdom to leave you with:
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert Allen
