“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a five year period?
Today, let’s look backwards in time to 2015, and take a look at what happened to investors who asked that very question about Mondelez International Inc (NASD: MDLZ), by taking a look at the investment outcome over a five year holding period.
| Start date: | 07/17/2015 |
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| End date: | 07/16/2020 | ||||
| Start price/share: | $41.89 | ||||
| End price/share: | $53.04 | ||||
| Starting shares: | 238.72 | ||||
| Ending shares: | 263.47 | ||||
| Dividends reinvested/share: | $4.50 | ||||
| Total return: | 39.75% | ||||
| Average annual return: | 6.92% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,975.73 | ||||
The above analysis shows the five year investment result worked out well, with an annualized rate of return of 6.92%. This would have turned a $10K investment made 5 years ago into $13,975.73 today (as of 07/16/2020). On a total return basis, that’s a result of 39.75% (something to think about: how might MDLZ shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Mondelez International Inc paid investors a total of $4.50/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 1.14/share, we calculate that MDLZ has a current yield of approximately 2.15%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.14 against the original $41.89/share purchase price. This works out to a yield on cost of 5.13%.
One more piece of investment wisdom to leave you with:
“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” — John Bogle
