“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Baker Hughes Company (NASD: BKR)? Today, we examine the outcome of a ten year investment into the stock back in 2012.
| Start date: | 02/09/2012 |
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| End date: | 02/08/2022 | ||||
| Start price/share: | $49.04 | ||||
| End price/share: | $27.36 | ||||
| Starting shares: | 203.92 | ||||
| Ending shares: | 251.42 | ||||
| Dividends reinvested/share: | $6.80 | ||||
| Total return: | -31.21% | ||||
| Average annual return: | -3.67% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,879.02 | ||||
The above analysis shows the ten year investment result worked out poorly, with an annualized rate of return of -3.67%. This would have turned a $10K investment made 10 years ago into $6,879.02 today (as of 02/08/2022). On a total return basis, that’s a result of -31.21% (something to think about: how might BKR shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Baker Hughes Company paid investors a total of $6.80/share in dividends over the 10 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 .72/share, we calculate that BKR has a current yield of approximately 2.63%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $49.04/share purchase price. This works out to a yield on cost of 5.36%.
Here’s one more great investment quote before you go:
“You can’t restate a dividend.” — Malon Wilkus
