“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 Baxter International Inc (NYSE: BAX)? Today, we examine the outcome of a five year investment into the stock back in 2020.
| Start date: | 04/28/2020 |
|
|||
| End date: | 04/25/2025 | ||||
| Start price/share: | $91.00 | ||||
| End price/share: | $30.22 | ||||
| Starting shares: | 109.89 | ||||
| Ending shares: | 121.77 | ||||
| Dividends reinvested/share: | $5.34 | ||||
| Total return: | -63.20% | ||||
| Average annual return: | -18.14% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $3,679.89 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -18.14%. This would have turned a $10K investment made 5 years ago into $3,679.89 today (as of 04/25/2025). On a total return basis, that’s a result of -63.20% (something to think about: how might BAX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Baxter International Inc paid investors a total of $5.34/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 .68/share, we calculate that BAX has a current yield of approximately 2.25%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .68 against the original $91.00/share purchase price. This works out to a yield on cost of 2.47%.
More investment wisdom to ponder:
“Know what you own and why you own it.” — Peter Lynch
