“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 CF Industries Holdings Inc (NYSE: CF)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 02/16/2018 |
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| End date: | 02/15/2023 | ||||
| Start price/share: | $40.36 | ||||
| End price/share: | $85.01 | ||||
| Starting shares: | 247.77 | ||||
| Ending shares: | 281.74 | ||||
| Dividends reinvested/share: | $6.40 | ||||
| Total return: | 139.51% | ||||
| Average annual return: | 19.09% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,953.91 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 19.09%. This would have turned a $10K investment made 5 years ago into $23,953.91 today (as of 02/15/2023). On a total return basis, that’s a result of 139.51% (something to think about: how might CF shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CF Industries Holdings Inc paid investors a total of $6.40/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 1.6/share, we calculate that CF has a current yield of approximately 1.88%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $40.36/share purchase price. This works out to a yield on cost of 4.66%.
Another great investment quote to think about:
“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” — Charlie Munger
