“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 Carnival Corp (NYSE: CCL)? Today, we examine the outcome of a five year investment into the stock back in 2017.
| Start date: | 01/31/2017 |
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| End date: | 01/28/2022 | ||||
| Start price/share: | $55.38 | ||||
| End price/share: | $18.97 | ||||
| Starting shares: | 180.57 | ||||
| Ending shares: | 201.28 | ||||
| Dividends reinvested/share: | $6.05 | ||||
| Total return: | -61.82% | ||||
| Average annual return: | -17.53% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $3,818.90 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -17.53%. This would have turned a $10K investment made 5 years ago into $3,818.90 today (as of 01/28/2022). On a total return basis, that’s a result of -61.82% (something to think about: how might CCL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Carnival Corp paid investors a total of $6.05/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/share, we calculate that CCL has a current yield of approximately 10.54%. 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 $55.38/share purchase price. This works out to a yield on cost of 19.03%.
Here’s one more great investment quote before you go:
“The right time for a company to finance its growth is not when it needs capital, but rather when the market is most receptive to providing capital.” — Michael Milken
