“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a five year period?
Today, let’s look backwards in time to 2018, and take a look at what happened to investors who asked that very question about Broadcom Inc (NASD: AVGO), by taking a look at the investment outcome over a five year holding period.
| Start date: | 01/24/2018 |
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| End date: | 01/23/2023 | ||||
| Start price/share: | $256.86 | ||||
| End price/share: | $581.63 | ||||
| Starting shares: | 38.93 | ||||
| Ending shares: | 47.03 | ||||
| Dividends reinvested/share: | $67.75 | ||||
| Total return: | 173.52% | ||||
| Average annual return: | 22.29% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,349.84 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 22.29%. This would have turned a $10K investment made 5 years ago into $27,349.84 today (as of 01/23/2023). On a total return basis, that’s a result of 173.52% (something to think about: how might AVGO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 5 years, Broadcom Inc has paid $67.75/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 18.4/share, we calculate that AVGO has a current yield of approximately 3.16%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 18.4 against the original $256.86/share purchase price. This works out to a yield on cost of 1.23%.
Another great investment quote to think about:
“All intelligent investing is value investing: acquiring more that you are paying for. You must value the business in order to value the stock.” — Charlie Munger
