“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 Western Digital Corp (NASD: WDC)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 12/13/2016 |
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| End date: | 12/10/2021 | ||||
| Start price/share: | $67.90 | ||||
| End price/share: | $57.87 | ||||
| Starting shares: | 147.28 | ||||
| Ending shares: | 165.34 | ||||
| Dividends reinvested/share: | $7.00 | ||||
| Total return: | -4.32% | ||||
| Average annual return: | -0.88% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,568.14 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -0.88%. This would have turned a $10K investment made 5 years ago into $9,568.14 today (as of 12/10/2021). On a total return basis, that’s a result of -4.32% (something to think about: how might WDC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of WDC’s total return these past 5 years has been the payment by Western Digital Corp of $7.00/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of 2/share, we calculate that WDC has a current yield of approximately 3.46%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $67.90/share purchase price. This works out to a yield on cost of 5.10%.
More investment wisdom to ponder:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
