“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 Paper Co (NYSE: IP)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 02/15/2018 |
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| End date: | 02/14/2023 | ||||
| Start price/share: | $55.49 | ||||
| End price/share: | $39.15 | ||||
| Starting shares: | 180.21 | ||||
| Ending shares: | 223.07 | ||||
| Dividends reinvested/share: | $9.44 | ||||
| Total return: | -12.67% | ||||
| Average annual return: | -2.67% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,734.41 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -2.67%. This would have turned a $10K investment made 5 years ago into $8,734.41 today (as of 02/14/2023). On a total return basis, that’s a result of -12.67% (something to think about: how might IP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Paper Co paid investors a total of $9.44/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 1.85/share, we calculate that IP has a current yield of approximately 4.73%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.85 against the original $55.49/share purchase price. This works out to a yield on cost of 8.52%.
One more investment quote to leave you with:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
