“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 AvalonBay Communities, Inc. (NYSE: AVB)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 01/29/2018 |
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| End date: | 01/26/2023 | ||||
| Start price/share: | $168.25 | ||||
| End price/share: | $173.45 | ||||
| Starting shares: | 59.44 | ||||
| Ending shares: | 70.26 | ||||
| Dividends reinvested/share: | $31.04 | ||||
| Total return: | 21.87% | ||||
| Average annual return: | 4.04% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,187.30 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 4.04%. This would have turned a $10K investment made 5 years ago into $12,187.30 today (as of 01/26/2023). On a total return basis, that’s a result of 21.87% (something to think about: how might AVB shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AvalonBay Communities, Inc. paid investors a total of $31.04/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 6.36/share, we calculate that AVB has a current yield of approximately 3.67%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.36 against the original $168.25/share purchase price. This works out to a yield on cost of 2.18%.
More investment wisdom to ponder:
“If you can follow only one bit of data, follow the earnings.” — Peter Lynch
