“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 Baxter International Inc (NYSE: BAX)? Today, we examine the outcome of a five year investment into the stock back in 2017.
| Start date: | 12/21/2017 |
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| End date: | 12/20/2022 | ||||
| Start price/share: | $64.53 | ||||
| End price/share: | $49.93 | ||||
| Starting shares: | 154.97 | ||||
| Ending shares: | 165.19 | ||||
| Dividends reinvested/share: | $4.77 | ||||
| Total return: | -17.52% | ||||
| Average annual return: | -3.78% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,247.58 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -3.78%. This would have turned a $10K investment made 5 years ago into $8,247.58 today (as of 12/20/2022). On a total return basis, that’s a result of -17.52% (something to think about: how might BAX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Baxter International Inc paid investors a total of $4.77/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 1.16/share, we calculate that BAX has a current yield of approximately 2.32%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.16 against the original $64.53/share purchase price. This works out to a yield on cost of 3.60%.
Another great investment quote to think about:
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett
