“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: | 03/04/2019 |
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| End date: | 03/01/2024 | ||||
| Start price/share: | $206.86 | ||||
| End price/share: | $91.86 | ||||
| Starting shares: | 48.34 | ||||
| Ending shares: | 59.73 | ||||
| Dividends reinvested/share: | $29.59 | ||||
| Total return: | -45.13% | ||||
| Average annual return: | -11.32% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,486.20 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -11.32%. This would have turned a $10K investment made 5 years ago into $5,486.20 today (as of 03/01/2024). On a total return basis, that’s a result of -45.13% (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 $29.59/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 6.04/share, we calculate that MMM has a current yield of approximately 6.58%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.04 against the original $206.86/share purchase price. This works out to a yield on cost of 3.18%.
Another great investment quote to think about:
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” — Charlie Munger
