“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 Hormel Foods Corp. (NYSE: HRL)? Today, we examine the outcome of a five year investment into the stock back in 2019.
| Start date: | 03/22/2019 |
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| End date: | 03/21/2024 | ||||
| Start price/share: | $43.59 | ||||
| End price/share: | $34.26 | ||||
| Starting shares: | 229.41 | ||||
| Ending shares: | 257.38 | ||||
| Dividends reinvested/share: | $4.97 | ||||
| Total return: | -11.82% | ||||
| Average annual return: | -2.48% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,819.39 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -2.48%. This would have turned a $10K investment made 5 years ago into $8,819.39 today (as of 03/21/2024). On a total return basis, that’s a result of -11.82% (something to think about: how might HRL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Hormel Foods Corp. paid investors a total of $4.97/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 1.13/share, we calculate that HRL has a current yield of approximately 3.30%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.13 against the original $43.59/share purchase price. This works out to a yield on cost of 7.57%.
More investment wisdom to ponder:
“The stock market is filled with individuals who know the price of everything, but the value of nothing.” — Phillip Fisher
