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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

One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a five year holding period for an investor who was considering Mondelez International Inc (NASD: MDLZ) back in 2014, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 09/29/2014
$10,000

09/29/2014
$17,801

09/26/2019
End date: 09/26/2019
Start price/share: $34.20
End price/share: $55.69
Starting shares: 292.40
Ending shares: 319.63
Dividends reinvested/share: $3.81
Total return: 78.00%
Average annual return: 12.24%
Starting investment: $10,000.00
Ending investment: $17,801.78

As shown above, the five year investment result worked out quite well, with an annualized rate of return of 12.24%. This would have turned a $10K investment made 5 years ago into $17,801.78 today (as of 09/26/2019). On a total return basis, that’s a result of 78.00% (something to think about: how might MDLZ shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Mondelez International Inc paid investors a total of $3.81/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 1.14/share, we calculate that MDLZ has a current yield of approximately 2.05%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.14 against the original $34.20/share purchase price. This works out to a yield on cost of 5.99%.

More investment wisdom to ponder:
“The policy of being too cautious is the greatest risk of all.” — Jawaharlal Nehru