“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 Delta Air Lines Inc (NYSE: DAL)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 08/25/2016 |
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| End date: | 08/24/2021 | ||||
| Start price/share: | $36.47 | ||||
| End price/share: | $40.53 | ||||
| Starting shares: | 274.20 | ||||
| Ending shares: | 298.12 | ||||
| Dividends reinvested/share: | $4.44 | ||||
| Total return: | 20.83% | ||||
| Average annual return: | 3.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,084.86 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 3.86%. This would have turned a $10K investment made 5 years ago into $12,084.86 today (as of 08/24/2021). On a total return basis, that’s a result of 20.83% (something to think about: how might DAL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Delta Air Lines Inc paid investors a total of $4.44/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 1.61/share, we calculate that DAL has a current yield of approximately 3.97%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.61 against the original $36.47/share purchase price. This works out to a yield on cost of 10.89%.
Here’s one more great investment quote before you go:
“Wide diversification is only required when investors do not understand what they are doing.” — Warren Buffett
