“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 Abbott Laboratories (NYSE: ABT)? Today, we examine the outcome of a five year investment into the stock back in 2015.
|Average annual return:||23.26%|
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 23.26%. This would have turned a $10K investment made 5 years ago into $28,435.57 today (as of 10/02/2020). On a total return basis, that’s a result of 184.40% (something to think about: how might ABT shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Abbott Laboratories paid investors a total of $5.82/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 1.44/share, we calculate that ABT has a current yield of approximately 1.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.44 against the original $41.39/share purchase price. This works out to a yield on cost of 3.26%.
Here’s one more great investment quote before you go:
“If I’ve learned one thing in this life it’s this: even if you lose, don’t lose the lesson.” — Daymond John