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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 Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Motorola Solutions Inc (NYSE: MSI)? Today, we examine the outcome of a five year investment into the stock back in 2014.

Start date: 12/29/2014
$10,000

12/29/2014
$26,276

12/26/2019
End date: 12/26/2019
Start price/share: $67.87
End price/share: $161.38
Starting shares: 147.34
Ending shares: 162.84
Dividends reinvested/share: $9.54
Total return: 162.80%
Average annual return: 21.34%
Starting investment: $10,000.00
Ending investment: $26,276.02

As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 21.34%. This would have turned a $10K investment made 5 years ago into $26,276.02 today (as of 12/26/2019). On a total return basis, that’s a result of 162.80% (something to think about: how might MSI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Motorola Solutions Inc paid investors a total of $9.54/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 2.56/share, we calculate that MSI has a current yield of approximately 1.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.56 against the original $67.87/share purchase price. This works out to a yield on cost of 2.34%.

Another great investment quote to think about:
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” — Albert Einstein