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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 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
$10,000

06/17/2014
$17,730

06/14/2019
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