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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 Merck & Co Inc (NYSE: MRK)? Today, we examine the outcome of a five year investment into the stock back in 2015.

Start date: 06/26/2015
$10,000

06/26/2015
$15,249

06/25/2020
End date: 06/25/2020
Start price/share: $58.49
End price/share: $76.57
Starting shares: 170.97
Ending shares: 199.16
Dividends reinvested/share: $10.12
Total return: 52.50%
Average annual return: 8.80%
Starting investment: $10,000.00
Ending investment: $15,249.12

As we can see, the five year investment result worked out well, with an annualized rate of return of 8.80%. This would have turned a $10K investment made 5 years ago into $15,249.12 today (as of 06/25/2020). On a total return basis, that’s a result of 52.50% (something to think about: how might MRK shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Merck & Co Inc paid investors a total of $10.12/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 2.44/share, we calculate that MRK has a current yield of approximately 3.19%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.44 against the original $58.49/share purchase price. This works out to a yield on cost of 5.45%.

One more piece of investment wisdom to leave you with:
“Behind every stock is a company. Find out what it’s doing.” — Peter Lynch