“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 Stanley Black & Decker Inc (NYSE: SWK) 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: | 06/17/2014 |
|
|||
| End date: | 06/14/2019 | ||||
| Start price/share: | $87.98 | ||||
| End price/share: | $141.51 | ||||
| Starting shares: | 113.66 | ||||
| Ending shares: | 125.29 | ||||
| Dividends reinvested/share: | $11.76 | ||||
| Total return: | 77.30% | ||||
| Average annual return: | 12.15% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $17,730.60 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 12.15%. This would have turned a $10K investment made 5 years ago into $17,730.60 today (as of 06/14/2019). On a total return basis, that’s a result of 77.30% (something to think about: how might SWK shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Stanley Black & Decker Inc paid investors a total of $11.76/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 2.64/share, we calculate that SWK has a current yield of approximately 1.87%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.64 against the original $87.98/share purchase price. This works out to a yield on cost of 2.13%.
More investment wisdom to ponder:
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffett
