“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 Verizon Communications Inc (NYSE: VZ)? Today, we examine the outcome of a five year investment into the stock back in 2017.
| Start date: | 12/13/2017 |
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| End date: | 12/12/2022 | ||||
| Start price/share: | $52.89 | ||||
| End price/share: | $37.95 | ||||
| Starting shares: | 189.07 | ||||
| Ending shares: | 237.73 | ||||
| Dividends reinvested/share: | $12.37 | ||||
| Total return: | -9.78% | ||||
| Average annual return: | -2.04% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,020.78 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -2.04%. This would have turned a $10K investment made 5 years ago into $9,020.78 today (as of 12/12/2022). On a total return basis, that’s a result of -9.78% (something to think about: how might VZ shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Verizon Communications Inc paid investors a total of $12.37/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 2.61/share, we calculate that VZ has a current yield of approximately 6.88%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.61 against the original $52.89/share purchase price. This works out to a yield on cost of 13.01%.
Here’s one more great investment quote before you go:
“It’s not how much money you make, but how much money you keep.” — Robert Kiyosaki
