“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 General Mills Inc (NYSE: GIS)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 03/02/2015 |
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| End date: | 02/27/2020 | ||||
| Start price/share: | $53.50 | ||||
| End price/share: | $50.14 | ||||
| Starting shares: | 186.92 | ||||
| Ending shares: | 223.32 | ||||
| Dividends reinvested/share: | $9.53 | ||||
| Total return: | 11.97% | ||||
| Average annual return: | 2.29% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,197.27 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 2.29%. This would have turned a $10K investment made 5 years ago into $11,197.27 today (as of 02/27/2020). On a total return basis, that’s a result of 11.97% (something to think about: how might GIS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that General Mills Inc paid investors a total of $9.53/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 1.96/share, we calculate that GIS has a current yield of approximately 3.91%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.96 against the original $53.50/share purchase price. This works out to a yield on cost of 7.31%.
More investment wisdom to ponder:
“The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” — William O’Neil
