“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 BorgWarner Inc (NYSE: BWA)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 06/24/2016 |
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| End date: | 06/23/2021 | ||||
| Start price/share: | $30.50 | ||||
| End price/share: | $48.44 | ||||
| Starting shares: | 327.87 | ||||
| Ending shares: | 355.23 | ||||
| Dividends reinvested/share: | $3.24 | ||||
| Total return: | 72.08% | ||||
| Average annual return: | 11.47% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $17,210.36 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 11.47%. This would have turned a $10K investment made 5 years ago into $17,210.36 today (as of 06/23/2021). On a total return basis, that’s a result of 72.08% (something to think about: how might BWA shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that BorgWarner Inc paid investors a total of $3.24/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 .68/share, we calculate that BWA has a current yield of approximately 1.40%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .68 against the original $30.50/share purchase price. This works out to a yield on cost of 4.59%.
Another great investment quote to think about:
“If you’re looking for a home run, a great investment for five years or 10 years or more, then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.” — Ralph Wanger
