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“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— Warren Buffett

Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a five year holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into Union Pacific Corp (NYSE: UNP) back in 2014: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.

Start date: 05/12/2014


End date: 05/09/2019
Start price/share: $95.82
End price/share: $175.63
Starting shares: 104.36
Ending shares: 116.49
Dividends reinvested/share: $12.33
Total return: 104.58%
Average annual return: 15.41%
Starting investment: $10,000.00
Ending investment: $20,458.61

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 15.41%. This would have turned a $10K investment made 5 years ago into $20,458.61 today (as of 05/09/2019). On a total return basis, that’s a result of 104.58% (something to think about: how might UNP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Union Pacific Corp paid investors a total of $12.33/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 3.52/share, we calculate that UNP has a current yield of approximately 2.00%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.52 against the original $95.82/share purchase price. This works out to a yield on cost of 2.09%.

Here’s one more great investment quote before you go:
“Money is better than poverty, if only for financial reasons.” — Woody Allen