“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 Altria Group Inc (NYSE: MO)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 03/17/2016 |
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| End date: | 03/16/2021 | ||||
| Start price/share: | $62.33 | ||||
| End price/share: | $49.44 | ||||
| Starting shares: | 160.44 | ||||
| Ending shares: | 209.93 | ||||
| Dividends reinvested/share: | $14.00 | ||||
| Total return: | 3.79% | ||||
| Average annual return: | 0.75% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,380.67 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 0.75%. This would have turned a $10K investment made 5 years ago into $10,380.67 today (as of 03/16/2021). On a total return basis, that’s a result of 3.79% (something to think about: how might MO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Altria Group Inc paid investors a total of $14.00/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 3.44/share, we calculate that MO has a current yield of approximately 6.96%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.44 against the original $62.33/share purchase price. This works out to a yield on cost of 11.17%.
One more investment quote to leave you with:
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger
