“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 Perrigo Company plc (NYSE: PRGO)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 05/15/2014 |
|
|||
| End date: | 05/14/2019 | ||||
| Start price/share: | $132.37 | ||||
| End price/share: | $49.70 | ||||
| Starting shares: | 75.55 | ||||
| Ending shares: | 78.13 | ||||
| Dividends reinvested/share: | $2.98 | ||||
| Total return: | -61.17% | ||||
| Average annual return: | -17.24% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $3,882.42 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -17.24%. This would have turned a $10K investment made 5 years ago into $3,882.42 today (as of 05/14/2019). On a total return basis, that’s a result of -61.17% (something to think about: how might PRGO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Perrigo Company plc paid investors a total of $2.98/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 .84/share, we calculate that PRGO has a current yield of approximately 1.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .84 against the original $132.37/share purchase price. This works out to a yield on cost of 1.28%.
More investment wisdom to ponder:
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” — Benjamin Graham
