“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 Cabot Oil & Gas Corp. (NYSE: COG)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 07/11/2016 |
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| End date: | 07/08/2021 | ||||
| Start price/share: | $25.60 | ||||
| End price/share: | $17.41 | ||||
| Starting shares: | 390.62 | ||||
| Ending shares: | 418.85 | ||||
| Dividends reinvested/share: | $1.42 | ||||
| Total return: | -27.08% | ||||
| Average annual return: | -6.13% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,290.96 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -6.13%. This would have turned a $10K investment made 5 years ago into $7,290.96 today (as of 07/08/2021). On a total return basis, that’s a result of -27.08% (something to think about: how might COG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cabot Oil & Gas Corp. paid investors a total of $1.42/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 COG has a current yield of approximately 2.53%. 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 $25.60/share purchase price. This works out to a yield on cost of 9.88%.
One more investment quote to leave you with:
“People who invest make money for themselves; people who speculate make money for their brokers.” — Benjamin Graham
