“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 Lumen Technologies Inc (NYSE: LUMN)? Today, we examine the outcome of a five year investment into the stock back in 2017.
| Start date: | 05/08/2017 |
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| End date: | 05/05/2022 | ||||
| Start price/share: | $24.80 | ||||
| End price/share: | $10.74 | ||||
| Starting shares: | 403.23 | ||||
| Ending shares: | 635.94 | ||||
| Dividends reinvested/share: | $6.78 | ||||
| Total return: | -31.70% | ||||
| Average annual return: | -7.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,829.81 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -7.35%. This would have turned a $10K investment made 5 years ago into $6,829.81 today (as of 05/05/2022). On a total return basis, that’s a result of -31.70% (something to think about: how might LUMN shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lumen Technologies Inc paid investors a total of $6.78/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 1/share, we calculate that LUMN has a current yield of approximately 9.31%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $24.80/share purchase price. This works out to a yield on cost of 37.54%.
Another great investment quote to think about:
“The policy of being too cautious is the greatest risk of all.” — Jawaharlal Nehru
