“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 L Brands, Inc (NYSE: LB)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 01/15/2016 |
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| End date: | 01/14/2021 | ||||
| Start price/share: | $92.34 | ||||
| End price/share: | $44.98 | ||||
| Starting shares: | 108.30 | ||||
| Ending shares: | 138.71 | ||||
| Dividends reinvested/share: | $10.70 | ||||
| Total return: | -37.61% | ||||
| Average annual return: | -9.00% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,238.71 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -9.00%. This would have turned a $10K investment made 5 years ago into $6,238.71 today (as of 01/14/2021). On a total return basis, that’s a result of -37.61% (something to think about: how might LB shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that L Brands, Inc paid investors a total of $10.70/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 1.2/share, we calculate that LB has a current yield of approximately 0.00%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.2 against the original $92.34/share purchase price. This works out to a yield on cost of 0.00%.
Another great investment quote to think about:
“Value investing is at its core the marriage of a contrarian streak and a calculator.” — Seth Klarman
