“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 Verizon Communications Inc (NYSE: VZ)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 06/18/2018 |
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| End date: | 06/15/2023 | ||||
| Start price/share: | $47.46 | ||||
| End price/share: | $36.44 | ||||
| Starting shares: | 210.70 | ||||
| Ending shares: | 267.11 | ||||
| Dividends reinvested/share: | $12.49 | ||||
| Total return: | -2.66% | ||||
| Average annual return: | -0.54% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,733.19 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -0.54%. This would have turned a $10K investment made 5 years ago into $9,733.19 today (as of 06/15/2023). On a total return basis, that’s a result of -2.66% (something to think about: how might VZ shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Verizon Communications Inc paid investors a total of $12.49/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 2.61/share, we calculate that VZ has a current yield of approximately 7.16%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.61 against the original $47.46/share purchase price. This works out to a yield on cost of 15.09%.
One more piece of investment wisdom to leave you with:
“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make.” — Bill Gross
