“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 International Business Machines Corp (NYSE: IBM)? Today, we examine the outcome of a five year investment into the stock back in 2017.
| Start date: | 08/09/2017 |
|
|||
| End date: | 08/08/2022 | ||||
| Start price/share: | $135.54 | ||||
| End price/share: | $132.61 | ||||
| Starting shares: | 73.78 | ||||
| Ending shares: | 92.48 | ||||
| Dividends reinvested/share: | $29.37 | ||||
| Total return: | 22.64% | ||||
| Average annual return: | 4.17% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,266.29 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 4.17%. This would have turned a $10K investment made 5 years ago into $12,266.29 today (as of 08/08/2022). On a total return basis, that’s a result of 22.64% (something to think about: how might IBM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Business Machines Corp paid investors a total of $29.37/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 6.6/share, we calculate that IBM has a current yield of approximately 4.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.6 against the original $135.54/share purchase price. This works out to a yield on cost of 3.67%.
More investment wisdom to ponder:
“Be fearful when others are greedy; be greedy when others are fearful.” — Warren Buffett
