“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 Occidental Petroleum Corp (NYSE: OXY)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 05/20/2016 |
|
|||
| End date: | 05/19/2021 | ||||
| Start price/share: | $74.96 | ||||
| End price/share: | $25.07 | ||||
| Starting shares: | 133.40 | ||||
| Ending shares: | 171.75 | ||||
| Dividends reinvested/share: | $12.40 | ||||
| Total return: | -56.94% | ||||
| Average annual return: | -15.51% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $4,305.53 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -15.51%. This would have turned a $10K investment made 5 years ago into $4,305.53 today (as of 05/19/2021). On a total return basis, that’s a result of -56.94% (something to think about: how might OXY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Occidental Petroleum Corp paid investors a total of $12.40/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 .04/share, we calculate that OXY has a current yield of approximately 0.16%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .04 against the original $74.96/share purchase price. This works out to a yield on cost of 0.21%.
One more piece of investment wisdom to leave you with:
“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” — Mark Twain
