“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 Archer Daniels Midland Co. (NYSE: ADM)? Today, we examine the outcome of a five year investment into the stock back in 2020.
| Start date: | 01/07/2020 |
|
|||
| End date: | 01/06/2025 | ||||
| Start price/share: | $45.11 | ||||
| End price/share: | $49.63 | ||||
| Starting shares: | 221.68 | ||||
| Ending shares: | 253.63 | ||||
| Dividends reinvested/share: | $8.32 | ||||
| Total return: | 25.88% | ||||
| Average annual return: | 4.71% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,589.13 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 4.71%. This would have turned a $10K investment made 5 years ago into $12,589.13 today (as of 01/06/2025). On a total return basis, that’s a result of 25.88% (something to think about: how might ADM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Archer Daniels Midland Co. paid investors a total of $8.32/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 2/share, we calculate that ADM has a current yield of approximately 4.03%. 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 $45.11/share purchase price. This works out to a yield on cost of 8.93%.
One more piece of investment wisdom to leave you with:
“Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.” — Peter Lynch
