“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 Starbucks Corp. (NASD: SBUX)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 01/05/2016 |
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| End date: | 01/04/2021 | ||||
| Start price/share: | $58.65 | ||||
| End price/share: | $103.10 | ||||
| Starting shares: | 170.50 | ||||
| Ending shares: | 187.53 | ||||
| Dividends reinvested/share: | $6.39 | ||||
| Total return: | 93.34% | ||||
| Average annual return: | 14.09% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $19,337.25 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 14.09%. This would have turned a $10K investment made 5 years ago into $19,337.25 today (as of 01/04/2021). On a total return basis, that’s a result of 93.34% (something to think about: how might SBUX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Starbucks Corp. paid investors a total of $6.39/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 1.8/share, we calculate that SBUX has a current yield of approximately 1.75%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.8 against the original $58.65/share purchase price. This works out to a yield on cost of 2.98%.
One more investment quote to leave you with:
“The four most dangerous words in investing are: ‘this time it’s different.'” — Sir John Templeton
