“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 2015, investors considering an investment into shares of Equifax Inc (NYSE: EFX) 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.
|Average annual return:||12.88%|
As we can see, the five year investment result worked out quite well, with an annualized rate of return of 12.88%. This would have turned a $10K investment made 5 years ago into $18,332.82 today (as of 06/29/2020). On a total return basis, that’s a result of 83.29% (something to think about: how might EFX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Equifax Inc paid investors a total of $7.36/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 1.56/share, we calculate that EFX has a current yield of approximately 0.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.56 against the original $97.09/share purchase price. This works out to a yield on cost of 0.96%.
More investment wisdom to ponder:
“Price is what you pay. Value is what you get.” — Warren Buffett