“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 Boeing Co. (NYSE: BA)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 04/18/2018 |
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| End date: | 04/17/2023 | ||||
| Start price/share: | $341.00 | ||||
| End price/share: | $205.03 | ||||
| Starting shares: | 29.33 | ||||
| Ending shares: | 30.62 | ||||
| Dividends reinvested/share: | $15.40 | ||||
| Total return: | -37.22% | ||||
| Average annual return: | -8.89% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,278.13 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -8.89%. This would have turned a $10K investment made 5 years ago into $6,278.13 today (as of 04/17/2023). On a total return basis, that’s a result of -37.22% (something to think about: how might BA shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Boeing Co. paid investors a total of $15.40/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 8.22/share, we calculate that BA has a current yield of approximately 4.01%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 8.22 against the original $341.00/share purchase price. This works out to a yield on cost of 1.18%.
Another great investment quote to think about:
“You can get in much more trouble with a good idea than a bad idea, because you forget that the good idea has limits.” — Benjamin Graham
