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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 above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a five year period?

Today, let’s look backwards in time to 2014, and take a look at what happened to investors who asked that very question about Agilent Technologies, Inc. (NYSE: A), by taking a look at the investment outcome over a five year holding period.

Start date: 12/18/2014
$10,000

12/18/2014
$21,644

12/17/2019
End date: 12/17/2019
Start price/share: $40.70
End price/share: $83.95
Starting shares: 245.70
Ending shares: 257.88
Dividends reinvested/share: $2.64
Total return: 116.49%
Average annual return: 16.70%
Starting investment: $10,000.00
Ending investment: $21,644.84

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 16.70%. This would have turned a $10K investment made 5 years ago into $21,644.84 today (as of 12/17/2019). On a total return basis, that’s a result of 116.49% (something to think about: how might A shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Agilent Technologies, Inc. paid investors a total of $2.64/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 .72/share, we calculate that A has a current yield of approximately 0.86%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $40.70/share purchase price. This works out to a yield on cost of 2.11%.

One more piece of investment wisdom to leave you with:
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger