“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.
| Start date: | 12/14/2015 |
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| End date: | 12/11/2020 | ||||
| Start price/share: | $76.03 | ||||
| End price/share: | $43.80 | ||||
| Starting shares: | 131.53 | ||||
| Ending shares: | 166.64 | ||||
| Dividends reinvested/share: | $16.18 | ||||
| Total return: | -27.01% | ||||
| Average annual return: | -6.11% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,297.46 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -6.11%. This would have turned a $10K investment made 5 years ago into $7,297.46 today (as of 12/11/2020). On a total return basis, that’s a result of -27.01% (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 $16.18/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 7.95%. 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 $76.03/share purchase price. This works out to a yield on cost of 10.46%.
One more piece of investment wisdom to leave you with:
“Be fearful when others are greedy; be greedy when others are fearful.” — Warren Buffett
