“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 2019, and take a look at what happened to investors who asked that very question about Loews Corp. (NYSE: L), by taking a look at the investment outcome over a five year holding period.
| Start date: | 03/01/2019 |
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| End date: | 02/29/2024 | ||||
| Start price/share: | $47.90 | ||||
| End price/share: | $75.13 | ||||
| Starting shares: | 208.77 | ||||
| Ending shares: | 213.79 | ||||
| Dividends reinvested/share: | $1.26 | ||||
| Total return: | 60.62% | ||||
| Average annual return: | 9.94% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,065.40 | ||||
As shown above, the five year investment result worked out well, with an annualized rate of return of 9.94%. This would have turned a $10K investment made 5 years ago into $16,065.40 today (as of 02/29/2024). On a total return basis, that’s a result of 60.62% (something to think about: how might L shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Loews Corp. paid investors a total of $1.26/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 .25/share, we calculate that L has a current yield of approximately 0.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .25 against the original $47.90/share purchase price. This works out to a yield on cost of 0.69%.
One more piece of investment wisdom to leave you with:
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” — Warren Buffett
