“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a five year holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in Constellation Brands Inc (NYSE: STZ) back in 2018, holding through to today.
| Start date: | 06/01/2018 |
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| End date: | 05/31/2023 | ||||
| Start price/share: | $222.75 | ||||
| End price/share: | $242.97 | ||||
| Starting shares: | 44.89 | ||||
| Ending shares: | 48.31 | ||||
| Dividends reinvested/share: | $15.35 | ||||
| Total return: | 17.38% | ||||
| Average annual return: | 3.26% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,739.80 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 3.26%. This would have turned a $10K investment made 5 years ago into $11,739.80 today (as of 05/31/2023). On a total return basis, that’s a result of 17.38% (something to think about: how might STZ shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Constellation Brands Inc paid investors a total of $15.35/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 3.56/share, we calculate that STZ has a current yield of approximately 1.47%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.56 against the original $222.75/share purchase price. This works out to a yield on cost of 0.66%.
Here’s one more great investment quote before you go:
“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
