“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 Flavors & Fragrances Inc. (NYSE: IFF)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 01/04/2018 |
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| End date: | 01/03/2023 | ||||
| Start price/share: | $153.76 | ||||
| End price/share: | $105.64 | ||||
| Starting shares: | 65.04 | ||||
| Ending shares: | 73.49 | ||||
| Dividends reinvested/share: | $15.16 | ||||
| Total return: | -22.36% | ||||
| Average annual return: | -4.94% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,762.28 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -4.94%. This would have turned a $10K investment made 5 years ago into $7,762.28 today (as of 01/03/2023). On a total return basis, that’s a result of -22.36% (something to think about: how might IFF shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Flavors & Fragrances Inc. paid investors a total of $15.16/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 3.24/share, we calculate that IFF has a current yield of approximately 3.07%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.24 against the original $153.76/share purchase price. This works out to a yield on cost of 2.00%.
One more investment quote to leave you with:
“Value investing means really asking what are the best values, and not assuming that because something looks expensive that it is, or assuming that because a stock is down in price and trades at low multiples that it is a bargain.” — Bill Miller
