“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: | 11/02/2017 |
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End date: | 11/01/2022 | ||||
Start price/share: | $17.46 | ||||
End price/share: | $7.43 | ||||
Starting shares: | 572.74 | ||||
Ending shares: | 899.80 | ||||
Dividends reinvested/share: | $6.20 | ||||
Total return: | -33.15% | ||||
Average annual return: | -7.74% | ||||
Starting investment: | $10,000.00 | ||||
Ending investment: | $6,684.47 |
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -7.74%. This would have turned a $10K investment made 5 years ago into $6,684.47 today (as of 11/01/2022). On a total return basis, that’s a result of -33.15% (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 $6.20/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 13.46%. 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 $17.46/share purchase price. This works out to a yield on cost of 77.09%.
One more piece of investment wisdom to leave you with:
“You’ve got to be careful if you don’t know where you’re going, ’cause you might not get there.” — Yogi Berra