“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 Lincoln National Corp. (NYSE: LNC)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 02/08/2018 |
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| End date: | 02/07/2023 | ||||
| Start price/share: | $73.86 | ||||
| End price/share: | $35.42 | ||||
| Starting shares: | 135.39 | ||||
| Ending shares: | 158.12 | ||||
| Dividends reinvested/share: | $8.00 | ||||
| Total return: | -43.99% | ||||
| Average annual return: | -10.95% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,599.76 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -10.95%. This would have turned a $10K investment made 5 years ago into $5,599.76 today (as of 02/07/2023). On a total return basis, that’s a result of -43.99% (something to think about: how might LNC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lincoln National Corp. paid investors a total of $8.00/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 1.8/share, we calculate that LNC has a current yield of approximately 5.08%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.8 against the original $73.86/share purchase price. This works out to a yield on cost of 6.88%.
Another great investment quote to think about:
“If you’re looking for a home run, a great investment for five years or 10 years or more, then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.” — Ralph Wanger
