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“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


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