“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 3M Co (NYSE: MMM)? Today, we examine the outcome of a five year investment into the stock back in 2019.
| Start date: | 02/04/2019 |
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| End date: | 02/01/2024 | ||||
| Start price/share: | $200.21 | ||||
| End price/share: | $95.91 | ||||
| Starting shares: | 49.95 | ||||
| Ending shares: | 61.15 | ||||
| Dividends reinvested/share: | $29.52 | ||||
| Total return: | -41.35% | ||||
| Average annual return: | -10.13% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,865.81 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -10.13%. This would have turned a $10K investment made 5 years ago into $5,865.81 today (as of 02/01/2024). On a total return basis, that’s a result of -41.35% (something to think about: how might MMM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that 3M Co paid investors a total of $29.52/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 6/share, we calculate that MMM has a current yield of approximately 6.26%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6 against the original $200.21/share purchase price. This works out to a yield on cost of 3.13%.
More investment wisdom to ponder:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
