“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 Ralph Lauren Corp (NYSE: RL)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 09/25/2015 |
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| End date: | 09/24/2020 | ||||
| Start price/share: | $108.32 | ||||
| End price/share: | $71.66 | ||||
| Starting shares: | 92.32 | ||||
| Ending shares: | 102.29 | ||||
| Dividends reinvested/share: | $10.25 | ||||
| Total return: | -26.70% | ||||
| Average annual return: | -6.02% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,329.99 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -6.02%. This would have turned a $10K investment made 5 years ago into $7,329.99 today (as of 09/24/2020). On a total return basis, that’s a result of -26.70% (something to think about: how might RL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ralph Lauren Corp paid investors a total of $10.25/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 2.75/share, we calculate that RL has a current yield of approximately 3.84%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.75 against the original $108.32/share purchase price. This works out to a yield on cost of 3.55%.
More investment wisdom to ponder:
“You’ve got to be careful if you don’t know where you’re going, ’cause you might not get there.” — Yogi Berra
