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“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 Microchip Technology Inc (NASD: MCHP)? Today, we examine the outcome of a five year investment into the stock back in 2016.

Start date: 01/27/2016


End date: 01/26/2021
Start price/share: $43.33
End price/share: $144.98
Starting shares: 230.79
Ending shares: 253.40
Dividends reinvested/share: $7.28
Total return: 267.38%
Average annual return: 29.71%
Starting investment: $10,000.00
Ending investment: $36,743.19

The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 29.71%. This would have turned a $10K investment made 5 years ago into $36,743.19 today (as of 01/26/2021). On a total return basis, that’s a result of 267.38% (something to think about: how might MCHP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Microchip Technology Inc paid investors a total of $7.28/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 1.474/share, we calculate that MCHP has a current yield of approximately 1.02%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.474 against the original $43.33/share purchase price. This works out to a yield on cost of 2.35%.

More investment wisdom to ponder:
“When you sell in desperation, you always sell cheap.” — Peter Lynch