“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 Franklin Resources Inc (NYSE: BEN)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 01/07/2015 |
|
|||
| End date: | 01/06/2020 | ||||
| Start price/share: | $53.29 | ||||
| End price/share: | $25.29 | ||||
| Starting shares: | 187.65 | ||||
| Ending shares: | 229.91 | ||||
| Dividends reinvested/share: | $7.20 | ||||
| Total return: | -41.86% | ||||
| Average annual return: | -10.28% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,813.62 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -10.28%. This would have turned a $10K investment made 5 years ago into $5,813.62 today (as of 01/06/2020). On a total return basis, that’s a result of -41.86% (something to think about: how might BEN shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Franklin Resources Inc paid investors a total of $7.20/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 1.08/share, we calculate that BEN has a current yield of approximately 4.27%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.08 against the original $53.29/share purchase price. This works out to a yield on cost of 8.01%.
One more piece of investment wisdom to leave you with:
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” — Charlie Munger
