“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 FedEx Corp (NYSE: FDX)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 02/23/2016 |
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| End date: | 02/22/2021 | ||||
| Start price/share: | $133.81 | ||||
| End price/share: | $254.67 | ||||
| Starting shares: | 74.73 | ||||
| Ending shares: | 79.30 | ||||
| Dividends reinvested/share: | $11.00 | ||||
| Total return: | 101.95% | ||||
| Average annual return: | 15.08% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,191.40 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 15.08%. This would have turned a $10K investment made 5 years ago into $20,191.40 today (as of 02/22/2021). On a total return basis, that’s a result of 101.95% (something to think about: how might FDX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that FedEx Corp paid investors a total of $11.00/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 2.6/share, we calculate that FDX 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 2.6 against the original $133.81/share purchase price. This works out to a yield on cost of 0.76%.
Here’s one more great investment quote before you go:
“Value investing means really asking what are the best values, and not assuming that because something looks expensive that it is, or assuming that because a stock is down in price and trades at low multiples that it is a bargain.” — Bill Miller
