“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 Cisco Systems Inc (NASD: CSCO)? Today, we examine the outcome of a five year investment into the stock back in 2019.
| Start date: | 03/27/2019 |
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| End date: | 03/26/2024 | ||||
| Start price/share: | $53.14 | ||||
| End price/share: | $49.55 | ||||
| Starting shares: | 188.18 | ||||
| Ending shares: | 218.86 | ||||
| Dividends reinvested/share: | $7.40 | ||||
| Total return: | 8.44% | ||||
| Average annual return: | 1.63% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,842.49 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 1.63%. This would have turned a $10K investment made 5 years ago into $10,842.49 today (as of 03/26/2024). On a total return basis, that’s a result of 8.44% (something to think about: how might CSCO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cisco Systems Inc paid investors a total of $7.40/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 1.6/share, we calculate that CSCO has a current yield of approximately 3.23%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $53.14/share purchase price. This works out to a yield on cost of 6.08%.
One more piece of investment wisdom to leave you with:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch
