“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: | 02/21/2020 |
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| End date: | 02/20/2025 | ||||
| Start price/share: | $43.90 | ||||
| End price/share: | $46.55 | ||||
| Starting shares: | 227.79 | ||||
| Ending shares: | 261.46 | ||||
| Dividends reinvested/share: | $8.47 | ||||
| Total return: | 21.71% | ||||
| Average annual return: | 4.01% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,173.69 | ||||
The above analysis shows the five year investment result worked out as follows, with an annualized rate of return of 4.01%. This would have turned a $10K investment made 5 years ago into $12,173.69 today (as of 02/20/2025). On a total return basis, that’s a result of 21.71% (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 $8.47/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 2.04/share, we calculate that ADM has a current yield of approximately 4.38%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.04 against the original $43.90/share purchase price. This works out to a yield on cost of 9.98%.
More investment wisdom to ponder:
“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” — Mark Twain
