“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 CenturyLink Inc (NYSE: CTL)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 09/17/2015 |
|
|||
| End date: | 09/16/2020 | ||||
| Start price/share: | $26.04 | ||||
| End price/share: | $11.00 | ||||
| Starting shares: | 384.02 | ||||
| Ending shares: | 615.75 | ||||
| Dividends reinvested/share: | $8.77 | ||||
| Total return: | -32.27% | ||||
| Average annual return: | -7.49% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,774.09 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -7.49%. This would have turned a $10K investment made 5 years ago into $6,774.09 today (as of 09/16/2020). On a total return basis, that’s a result of -32.27% (something to think about: how might CTL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CenturyLink Inc paid investors a total of $8.77/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/share, we calculate that CTL has a current yield of approximately 9.09%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $26.04/share purchase price. This works out to a yield on cost of 34.91%.
Another great investment quote to think about:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
