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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

This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a five year holding period potentially?

For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 5 years to 2014, investors considering an investment into shares of Snap-On, Inc. (NYSE: SNA) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.

Start date: 12/08/2014
$10,000

12/08/2014
$13,115

12/05/2019
End date: 12/05/2019
Start price/share: $135.92
End price/share: $162.19
Starting shares: 73.57
Ending shares: 80.88
Dividends reinvested/share: $15.03
Total return: 31.17%
Average annual return: 5.58%
Starting investment: $10,000.00
Ending investment: $13,115.33

As we can see, the five year investment result worked out well, with an annualized rate of return of 5.58%. This would have turned a $10K investment made 5 years ago into $13,115.33 today (as of 12/05/2019). On a total return basis, that’s a result of 31.17% (something to think about: how might SNA shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Snap-On, Inc. paid investors a total of $15.03/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 4.32/share, we calculate that SNA has a current yield of approximately 2.66%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.32 against the original $135.92/share purchase price. This works out to a yield on cost of 1.96%.

Another great investment quote to think about:
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” — Warren Buffett