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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

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Atmos Energy Corp. (NYSE: ATO) back in 2014. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 12/19/2014
$10,000

12/19/2014
$22,751

12/18/2019
End date: 12/18/2019
Start price/share: $54.38
End price/share: $110.15
Starting shares: 183.89
Ending shares: 206.59
Dividends reinvested/share: $9.27
Total return: 127.56%
Average annual return: 17.87%
Starting investment: $10,000.00
Ending investment: $22,751.83

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 17.87%. This would have turned a $10K investment made 5 years ago into $22,751.83 today (as of 12/18/2019). On a total return basis, that’s a result of 127.56% (something to think about: how might ATO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Atmos Energy Corp. paid investors a total of $9.27/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 2.3/share, we calculate that ATO has a current yield of approximately 2.09%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.3 against the original $54.38/share purchase price. This works out to a yield on cost of 3.84%.

Here’s one more great investment quote before you go:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt