“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 Best Buy Inc (NYSE: BBY)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 04/11/2018 |
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| End date: | 04/10/2023 | ||||
| Start price/share: | $70.91 | ||||
| End price/share: | $74.96 | ||||
| Starting shares: | 141.02 | ||||
| Ending shares: | 164.98 | ||||
| Dividends reinvested/share: | $12.79 | ||||
| Total return: | 23.67% | ||||
| Average annual return: | 4.34% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,366.71 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 4.34%. This would have turned a $10K investment made 5 years ago into $12,366.71 today (as of 04/10/2023). On a total return basis, that’s a result of 23.67% (something to think about: how might BBY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Best Buy Inc paid investors a total of $12.79/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 3.68/share, we calculate that BBY has a current yield of approximately 4.91%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.68 against the original $70.91/share purchase price. This works out to a yield on cost of 6.92%.
More investment wisdom to ponder:
“All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.” — Peter Lynch
