“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 US Bancorp (NYSE: USB)? Today, we examine the outcome of a five year investment into the stock back in 2019.
| Start date: | 08/12/2019 |
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| End date: | 08/09/2024 | ||||
| Start price/share: | $52.24 | ||||
| End price/share: | $42.07 | ||||
| Starting shares: | 191.42 | ||||
| Ending shares: | 235.53 | ||||
| Dividends reinvested/share: | $9.07 | ||||
| Total return: | -0.91% | ||||
| Average annual return: | -0.18% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,910.37 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -0.18%. This would have turned a $10K investment made 5 years ago into $9,910.37 today (as of 08/09/2024). On a total return basis, that’s a result of -0.91% (something to think about: how might USB shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that US Bancorp paid investors a total of $9.07/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 1.96/share, we calculate that USB has a current yield of approximately 4.66%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.96 against the original $52.24/share purchase price. This works out to a yield on cost of 8.92%.
One more piece of investment wisdom to leave you with:
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” — Peter Lynch
