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“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

— Warren Buffett

The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Merck & Co Inc (NYSE: MRK)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.

Start date: 09/23/1999


End date: 09/20/2019
Start price/share: $68.56
End price/share: $85.16
Starting shares: 145.85
Ending shares: 304.38
Dividends reinvested/share: $34.87
Total return: 159.21%
Average annual return: 4.88%
Starting investment: $10,000.00
Ending investment: $25,939.82

As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 4.88%. This would have turned a $10K investment made 20 years ago into $25,939.82 today (as of 09/20/2019). On a total return basis, that’s a result of 159.21% (something to think about: how might MRK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Merck & Co Inc paid investors a total of $34.87/share in dividends over the 20 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 2.2/share, we calculate that MRK has a current yield of approximately 2.58%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.2 against the original $68.56/share purchase price. This works out to a yield on cost of 3.76%.

Another great investment quote to think about:
“Buy not on optimism, but on arithmetic.” — Benjamin Graham