“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 Hormel Foods Corp. (NYSE: HRL)? Today, we examine the outcome of a five year investment into the stock back in 2019.
| Start date: | 09/12/2019 |
|
|||
| End date: | 09/11/2024 | ||||
| Start price/share: | $44.00 | ||||
| End price/share: | $31.34 | ||||
| Starting shares: | 227.27 | ||||
| Ending shares: | 256.86 | ||||
| Dividends reinvested/share: | $5.11 | ||||
| Total return: | -19.50% | ||||
| Average annual return: | -4.24% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,051.36 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -4.24%. This would have turned a $10K investment made 5 years ago into $8,051.36 today (as of 09/11/2024). On a total return basis, that’s a result of -19.50% (something to think about: how might HRL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Hormel Foods Corp. paid investors a total of $5.11/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 1.13/share, we calculate that HRL has a current yield of approximately 3.61%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.13 against the original $44.00/share purchase price. This works out to a yield on cost of 8.20%.
More investment wisdom to ponder:
“You can’t restate a dividend.” — Malon Wilkus
