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“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 decade-long holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into Parker Hannifin Corp (NYSE: PH) back in 2009: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full decade-long investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.

Start date: 12/11/2009
$10,000

12/11/2009
$45,131

12/10/2019
End date: 12/10/2019
Start price/share: $54.00
End price/share: $202.38
Starting shares: 185.19
Ending shares: 222.91
Dividends reinvested/share: $21.99
Total return: 351.13%
Average annual return: 16.26%
Starting investment: $10,000.00
Ending investment: $45,131.78

The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 16.26%. This would have turned a $10K investment made 10 years ago into $45,131.78 today (as of 12/10/2019). On a total return basis, that’s a result of 351.13% (something to think about: how might PH shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Parker Hannifin Corp paid investors a total of $21.99/share in dividends over the 10 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 3.52/share, we calculate that PH has a current yield of approximately 1.74%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.52 against the original $54.00/share purchase price. This works out to a yield on cost of 3.22%.

One more investment quote to leave you with:
“You can get in much more trouble with a good idea than a bad idea, because you forget that the good idea has limits.” — Benjamin Graham