“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 Microchip Technology Inc (NASD: MCHP)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 01/27/2016 |
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| End date: | 01/26/2021 | ||||
| Start price/share: | $43.33 | ||||
| End price/share: | $144.98 | ||||
| Starting shares: | 230.79 | ||||
| Ending shares: | 253.40 | ||||
| Dividends reinvested/share: | $7.28 | ||||
| Total return: | 267.38% | ||||
| Average annual return: | 29.71% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $36,743.19 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 29.71%. This would have turned a $10K investment made 5 years ago into $36,743.19 today (as of 01/26/2021). On a total return basis, that’s a result of 267.38% (something to think about: how might MCHP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Microchip Technology Inc paid investors a total of $7.28/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 1.474/share, we calculate that MCHP has a current yield of approximately 1.02%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.474 against the original $43.33/share purchase price. This works out to a yield on cost of 2.35%.
More investment wisdom to ponder:
“When you sell in desperation, you always sell cheap.” — Peter Lynch
