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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 Emerson Electric Co. (NYSE: EMR) 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: 10/30/2014
$10,000

10/30/2014
$13,144

10/29/2019
End date: 10/29/2019
Start price/share: $63.42
End price/share: $70.86
Starting shares: 157.68
Ending shares: 185.47
Dividends reinvested/share: $9.60
Total return: 31.42%
Average annual return: 5.62%
Starting investment: $10,000.00
Ending investment: $13,144.10

As shown above, the five year investment result worked out well, with an annualized rate of return of 5.62%. This would have turned a $10K investment made 5 years ago into $13,144.10 today (as of 10/29/2019). On a total return basis, that’s a result of 31.42% (something to think about: how might EMR shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Emerson Electric Co. paid investors a total of $9.60/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 1.96/share, we calculate that EMR has a current yield of approximately 2.77%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.96 against the original $63.42/share purchase price. This works out to a yield on cost of 4.37%.

Here’s one more great investment quote before you go:
“As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.” — Benjamin Graham