“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 Best Buy Inc (NYSE: BBY)? Today, we examine the outcome of a five year investment into the stock back in 2017.
| Start date: | 06/26/2017 |
|
|||
| End date: | 06/23/2022 | ||||
| Start price/share: | $56.29 | ||||
| End price/share: | $71.29 | ||||
| Starting shares: | 177.65 | ||||
| Ending shares: | 204.44 | ||||
| Dividends reinvested/share: | $11.24 | ||||
| Total return: | 45.75% | ||||
| Average annual return: | 7.83% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,571.98 | ||||
The above analysis shows the five year investment result worked out well, with an annualized rate of return of 7.83%. This would have turned a $10K investment made 5 years ago into $14,571.98 today (as of 06/23/2022). On a total return basis, that’s a result of 45.75% (something to think about: how might BBY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Best Buy Inc paid investors a total of $11.24/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 3.52/share, we calculate that BBY has a current yield of approximately 4.94%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.52 against the original $56.29/share purchase price. This works out to a yield on cost of 8.78%.
One more piece of investment wisdom to leave you with:
“While it might seem that anyone can be a value investor, the essential characteristics of this type of investor-patience, discipline, and risk aversion-may well be genetically determined.” — Seth Klarman
