“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: | 12/27/2018 |
|
|||
| End date: | 12/26/2023 | ||||
| Start price/share: | $68.36 | ||||
| End price/share: | $26.61 | ||||
| Starting shares: | 146.28 | ||||
| Ending shares: | 183.74 | ||||
| Dividends reinvested/share: | $9.38 | ||||
| Total return: | -51.11% | ||||
| Average annual return: | -13.33% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $4,890.40 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -13.33%. This would have turned a $10K investment made 5 years ago into $4,890.40 today (as of 12/26/2023). On a total return basis, that’s a result of -51.11% (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 $9.38/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 7.22%. 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 $68.36/share purchase price. This works out to a yield on cost of 10.56%.
One more piece of investment wisdom to leave you with:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
