“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 Noble Energy Inc (NYSE: NBL)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 08/19/2014 |
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| End date: | 08/16/2019 | ||||
| Start price/share: | $70.25 | ||||
| End price/share: | $21.51 | ||||
| Starting shares: | 142.35 | ||||
| Ending shares: | 153.56 | ||||
| Dividends reinvested/share: | $2.48 | ||||
| Total return: | -66.97% | ||||
| Average annual return: | -19.89% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $3,303.40 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -19.89%. This would have turned a $10K investment made 5 years ago into $3,303.40 today (as of 08/16/2019). On a total return basis, that’s a result of -66.97% (something to think about: how might NBL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Noble Energy Inc paid investors a total of $2.48/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 .48/share, we calculate that NBL has a current yield of approximately 2.23%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .48 against the original $70.25/share purchase price. This works out to a yield on cost of 3.17%.
Another great investment quote to think about:
“Don’t look for the needle in the haystack, just buy the haystack.” — John Bogle
