“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a five year holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in CF Industries Holdings Inc (NYSE: CF) back in 2019, holding through to today.
| Start date: | 10/28/2019 |
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| End date: | 10/25/2024 | ||||
| Start price/share: | $45.83 | ||||
| End price/share: | $83.19 | ||||
| Starting shares: | 218.20 | ||||
| Ending shares: | 246.78 | ||||
| Dividends reinvested/share: | $7.30 | ||||
| Total return: | 105.29% | ||||
| Average annual return: | 15.48% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,528.76 | ||||
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 15.48%. This would have turned a $10K investment made 5 years ago into $20,528.76 today (as of 10/25/2024). On a total return basis, that’s a result of 105.29% (something to think about: how might CF shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of CF Industries Holdings Inc, investors have received $7.30/share in dividends these past 5 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use closing price on ex-date).
Based upon the most recent annualized dividend rate of 2/share, we calculate that CF has a current yield of approximately 2.40%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $45.83/share purchase price. This works out to a yield on cost of 5.24%.
More investment wisdom to ponder:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
