“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 Devon Energy Corp. (NYSE: DVN)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 04/29/2016 |
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| End date: | 04/28/2021 | ||||
| Start price/share: | $34.68 | ||||
| End price/share: | $24.03 | ||||
| Starting shares: | 288.35 | ||||
| Ending shares: | 320.88 | ||||
| Dividends reinvested/share: | $2.05 | ||||
| Total return: | -22.89% | ||||
| Average annual return: | -5.07% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,709.34 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -5.07%. This would have turned a $10K investment made 5 years ago into $7,709.34 today (as of 04/28/2021). On a total return basis, that’s a result of -22.89% (something to think about: how might DVN shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Devon Energy Corp. paid investors a total of $2.05/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 .44/share, we calculate that DVN has a current yield of approximately 1.83%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .44 against the original $34.68/share purchase price. This works out to a yield on cost of 5.28%.
One more piece of investment wisdom to leave you with:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
