“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 3M Co (NYSE: MMM)? Today, we examine the outcome of a five year investment into the stock back in 2017.
| Start date: | 06/12/2017 |
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| End date: | 06/09/2022 | ||||
| Start price/share: | $207.39 | ||||
| End price/share: | $144.18 | ||||
| Starting shares: | 48.22 | ||||
| Ending shares: | 56.51 | ||||
| Dividends reinvested/share: | $28.33 | ||||
| Total return: | -18.53% | ||||
| Average annual return: | -4.02% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,147.07 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -4.02%. This would have turned a $10K investment made 5 years ago into $8,147.07 today (as of 06/09/2022). On a total return basis, that’s a result of -18.53% (something to think about: how might MMM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that 3M Co paid investors a total of $28.33/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 5.96/share, we calculate that MMM has a current yield of approximately 4.13%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.96 against the original $207.39/share purchase price. This works out to a yield on cost of 1.99%.
One more investment quote to leave you with:
“The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” — William O’Neil
