“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 Philip Morris International Inc (NYSE: PM)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 11/03/2016 |
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| End date: | 11/02/2021 | ||||
| Start price/share: | $96.23 | ||||
| End price/share: | $94.02 | ||||
| Starting shares: | 103.92 | ||||
| Ending shares: | 135.37 | ||||
| Dividends reinvested/share: | $22.76 | ||||
| Total return: | 27.28% | ||||
| Average annual return: | 4.94% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,726.39 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 4.94%. This would have turned a $10K investment made 5 years ago into $12,726.39 today (as of 11/02/2021). On a total return basis, that’s a result of 27.28% (something to think about: how might PM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Philip Morris International Inc paid investors a total of $22.76/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 5/share, we calculate that PM has a current yield of approximately 5.32%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5 against the original $96.23/share purchase price. This works out to a yield on cost of 5.53%.
Another great investment quote to think about:
“Never is there a better time to buy a stock than when a basically sound company, for whatever reason, temporarily falls out of favor with the investment community.” — Geraldine Weiss
