“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 Lumen Technologies Inc (NYSE: LUMN)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 06/27/2016 |
|
|||
| End date: | 06/24/2021 | ||||
| Start price/share: | $26.82 | ||||
| End price/share: | $13.95 | ||||
| Starting shares: | 372.86 | ||||
| Ending shares: | 599.64 | ||||
| Dividends reinvested/share: | $7.90 | ||||
| Total return: | -16.35% | ||||
| Average annual return: | -3.51% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,365.59 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -3.51%. This would have turned a $10K investment made 5 years ago into $8,365.59 today (as of 06/24/2021). On a total return basis, that’s a result of -16.35% (something to think about: how might LUMN shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lumen Technologies Inc paid investors a total of $7.90/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/share, we calculate that LUMN has a current yield of approximately 7.17%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $26.82/share purchase price. This works out to a yield on cost of 26.73%.
One more piece of investment wisdom to leave you with:
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” — Warren Buffett
