“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 Walgreens Boots Alliance Inc (NASD: WBA)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 04/02/2018 |
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| End date: | 03/29/2023 | ||||
| Start price/share: | $63.10 | ||||
| End price/share: | $34.15 | ||||
| Starting shares: | 158.48 | ||||
| Ending shares: | 191.45 | ||||
| Dividends reinvested/share: | $9.22 | ||||
| Total return: | -34.62% | ||||
| Average annual return: | -8.16% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,538.28 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -8.16%. This would have turned a $10K investment made 5 years ago into $6,538.28 today (as of 03/29/2023). On a total return basis, that’s a result of -34.62% (something to think about: how might WBA shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Walgreens Boots Alliance Inc paid investors a total of $9.22/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 1.92/share, we calculate that WBA has a current yield of approximately 5.62%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.92 against the original $63.10/share purchase price. This works out to a yield on cost of 8.91%.
More investment wisdom to ponder:
“As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.” — Benjamin Graham
