“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a five year period?
Today, let’s look backwards in time to 2017, and take a look at what happened to investors who asked that very question about ConocoPhillips (NYSE: COP), by taking a look at the investment outcome over a five year holding period.
| Start date: | 06/05/2017 |
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| End date: | 06/02/2022 | ||||
| Start price/share: | $44.02 | ||||
| End price/share: | $114.96 | ||||
| Starting shares: | 227.17 | ||||
| Ending shares: | 260.61 | ||||
| Dividends reinvested/share: | $7.88 | ||||
| Total return: | 199.60% | ||||
| Average annual return: | 24.57% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $29,960.19 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 24.57%. This would have turned a $10K investment made 5 years ago into $29,960.19 today (as of 06/02/2022). On a total return basis, that’s a result of 199.60% (something to think about: how might COP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that ConocoPhillips paid investors a total of $7.88/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 1.84/share, we calculate that COP has a current yield of approximately 1.60%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.84 against the original $44.02/share purchase price. This works out to a yield on cost of 3.63%.
One more piece of investment wisdom to leave you with:
“In the long run, we are all dead.” — John Maynard Keynes
