“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 US Bancorp (NYSE: USB)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 01/09/2018 |
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| End date: | 01/06/2023 | ||||
| Start price/share: | $55.78 | ||||
| End price/share: | $46.31 | ||||
| Starting shares: | 179.28 | ||||
| Ending shares: | 212.93 | ||||
| Dividends reinvested/share: | $8.24 | ||||
| Total return: | -1.39% | ||||
| Average annual return: | -0.28% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,860.93 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -0.28%. This would have turned a $10K investment made 5 years ago into $9,860.93 today (as of 01/06/2023). On a total return basis, that’s a result of -1.39% (something to think about: how might USB shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that US Bancorp paid investors a total of $8.24/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 1.92/share, we calculate that USB has a current yield of approximately 4.15%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.92 against the original $55.78/share purchase price. This works out to a yield on cost of 7.44%.
One more investment quote to leave you with:
“I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.” — Peter Lynch
