“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 Allergan PLC (NYSE: AGN)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 10/03/2014 |
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| End date: | 10/02/2019 | ||||
| Start price/share: | $246.07 | ||||
| End price/share: | $165.40 | ||||
| Starting shares: | 40.64 | ||||
| Ending shares: | 42.54 | ||||
| Dividends reinvested/share: | $7.90 | ||||
| Total return: | -29.64% | ||||
| Average annual return: | -6.79% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,035.78 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -6.79%. This would have turned a $10K investment made 5 years ago into $7,035.78 today (as of 10/02/2019). On a total return basis, that’s a result of -29.64% (something to think about: how might AGN shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Allergan PLC paid investors a total of $7.90/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 2.96/share, we calculate that AGN has a current yield of approximately 1.79%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.96 against the original $246.07/share purchase price. This works out to a yield on cost of 0.73%.
One more piece of investment wisdom to leave you with:
“While it might seem that anyone can be a value investor, the essential characteristics of this type of investor-patience, discipline, and risk aversion-may well be genetically determined.” — Seth Klarman
