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“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 Broadcom Inc (NASD: AVGO)? Today, we examine the outcome of a five year investment into the stock back in 2016.

Start date: 11/02/2016
$10,000

11/02/2016
$36,491

11/01/2021
End date: 11/01/2021
Start price/share: $172.56
End price/share: $528.05
Starting shares: 57.95
Ending shares: 69.11
Dividends reinvested/share: $52.58
Total return: 264.94%
Average annual return: 29.55%
Starting investment: $10,000.00
Ending investment: $36,491.11

The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 29.55%. This would have turned a $10K investment made 5 years ago into $36,491.11 today (as of 11/01/2021). On a total return basis, that’s a result of 264.94% (something to think about: how might AVGO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Broadcom Inc paid investors a total of $52.58/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 14.4/share, we calculate that AVGO has a current yield of approximately 2.73%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 14.4 against the original $172.56/share purchase price. This works out to a yield on cost of 1.58%.

Another great investment quote to think about:
“Value investing is at its core the marriage of a contrarian streak and a calculator.” — Seth Klarman