“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 APA Corp (NASD: APA)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 01/16/2018 |
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| End date: | 01/12/2023 | ||||
| Start price/share: | $46.27 | ||||
| End price/share: | $45.35 | ||||
| Starting shares: | 216.12 | ||||
| Ending shares: | 238.25 | ||||
| Dividends reinvested/share: | $3.09 | ||||
| Total return: | 8.05% | ||||
| Average annual return: | 1.56% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,803.34 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 1.56%. This would have turned a $10K investment made 5 years ago into $10,803.34 today (as of 01/12/2023). On a total return basis, that’s a result of 8.05% (something to think about: how might APA shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that APA Corp paid investors a total of $3.09/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/share, we calculate that APA has a current yield of approximately 2.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $46.27/share purchase price. This works out to a yield on cost of 4.78%.
One more piece of investment wisdom to leave you with:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett
