“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 Best Buy Inc (NYSE: BBY)? Today, we examine the outcome of a five year investment into the stock back in 2016.
|Average annual return:||30.55%|
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 30.55%. This would have turned a $10K investment made 5 years ago into $37,921.40 today (as of 08/10/2021). On a total return basis, that’s a result of 279.28% (something to think about: how might BBY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Best Buy Inc paid investors a total of $9.32/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 2.8/share, we calculate that BBY has a current yield of approximately 2.43%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.8 against the original $34.62/share purchase price. This works out to a yield on cost of 7.02%.
Here’s one more great investment quote before you go:
“Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety.” — Benjamin Graham