“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.
|Average annual return:||-9.30%|
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -9.30%. This would have turned a $10K investment made 5 years ago into $6,136.49 today (as of 09/22/2020). On a total return basis, that’s a result of -38.63% (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 $16.04/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 9.79%. 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 $72.30/share purchase price. This works out to a yield on cost of 13.54%.
Here’s one more great investment quote before you go:
“Behind every stock is a company. Find out what it’s doing.” — Peter Lynch