“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 Omnicom Group, Inc. (NYSE: OMC)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 09/23/2015 |
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| End date: | 09/22/2020 | ||||
| Start price/share: | $66.82 | ||||
| End price/share: | $49.71 | ||||
| Starting shares: | 149.66 | ||||
| Ending shares: | 176.03 | ||||
| Dividends reinvested/share: | $11.85 | ||||
| Total return: | -12.49% | ||||
| Average annual return: | -2.63% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,751.73 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -2.63%. This would have turned a $10K investment made 5 years ago into $8,751.73 today (as of 09/22/2020). On a total return basis, that’s a result of -12.49% (something to think about: how might OMC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Omnicom Group, Inc. paid investors a total of $11.85/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 2.6/share, we calculate that OMC has a current yield of approximately 5.23%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.6 against the original $66.82/share purchase price. This works out to a yield on cost of 7.83%.
One more investment quote to leave you with:
“I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.” — Peter Lynch
