“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a five year period?
Today, let’s look backwards in time to 2015, and take a look at what happened to investors who asked that very question about Activision Blizzard, Inc. (NASD: ATVI), by taking a look at the investment outcome over a five year holding period.
| Start date: | 07/02/2015 |
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| End date: | 07/01/2020 | ||||
| Start price/share: | $24.63 | ||||
| End price/share: | $78.03 | ||||
| Starting shares: | 406.01 | ||||
| Ending shares: | 419.95 | ||||
| Dividends reinvested/share: | $1.68 | ||||
| Total return: | 227.69% | ||||
| Average annual return: | 26.78% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $32,774.50 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 26.78%. This would have turned a $10K investment made 5 years ago into $32,774.50 today (as of 07/01/2020). On a total return basis, that’s a result of 227.69% (something to think about: how might ATVI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Activision Blizzard, Inc. paid investors a total of $1.68/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 .41/share, we calculate that ATVI has a current yield of approximately 0.53%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .41 against the original $24.63/share purchase price. This works out to a yield on cost of 2.15%.
One more investment quote to leave you with:
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” — Peter Lynch
