“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 2017.
| Start date: | 03/16/2017 |
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| End date: | 03/15/2022 | ||||
| Start price/share: | $77.14 | ||||
| End price/share: | $45.94 | ||||
| Starting shares: | 129.63 | ||||
| Ending shares: | 144.50 | ||||
| Dividends reinvested/share: | $6.50 | ||||
| Total return: | -33.62% | ||||
| Average annual return: | -7.87% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,637.51 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -7.87%. This would have turned a $10K investment made 5 years ago into $6,637.51 today (as of 03/15/2022). On a total return basis, that’s a result of -33.62% (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.]
Notice that Western Digital Corp paid investors a total of $6.50/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 WDC has a current yield of approximately 4.35%. 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 $77.14/share purchase price. This works out to a yield on cost of 5.64%.
One more piece of investment wisdom to leave you with:
“Markets can remain irrational longer than you can remain solvent.” — John Maynard Keynes
