“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 Allergan PLC (NYSE: AGN)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 03/04/2015 |
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| End date: | 03/03/2020 | ||||
| Start price/share: | $296.14 | ||||
| End price/share: | $191.94 | ||||
| Starting shares: | 33.77 | ||||
| Ending shares: | 35.62 | ||||
| Dividends reinvested/share: | $9.38 | ||||
| Total return: | -31.63% | ||||
| Average annual return: | -7.32% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,836.59 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -7.32%. This would have turned a $10K investment made 5 years ago into $6,836.59 today (as of 03/03/2020). On a total return basis, that’s a result of -31.63% (something to think about: how might AGN shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Allergan PLC paid investors a total of $9.38/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 2.96/share, we calculate that AGN has a current yield of approximately 1.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.96 against the original $296.14/share purchase price. This works out to a yield on cost of 0.52%.
Here’s one more great investment quote before you go:
“The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.” — Bruce Kovner
