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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 2015, and take a look at what happened to investors who asked that very question about Honeywell International Inc (NYSE: HON), by taking a look at the investment outcome over a five year holding period.

Start date: 07/28/2015
$10,000

07/28/2015
$16,878

07/27/2020
End date: 07/27/2020
Start price/share: $99.34
End price/share: $150.76
Starting shares: 100.66
Ending shares: 111.94
Dividends reinvested/share: $14.15
Total return: 68.76%
Average annual return: 11.03%
Starting investment: $10,000.00
Ending investment: $16,878.20

The above analysis shows the five year investment result worked out quite well, with an annualized rate of return of 11.03%. This would have turned a $10K investment made 5 years ago into $16,878.20 today (as of 07/27/2020). On a total return basis, that’s a result of 68.76% (something to think about: how might HON shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Honeywell International Inc paid investors a total of $14.15/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 3.6/share, we calculate that HON has a current yield of approximately 2.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.6 against the original $99.34/share purchase price. This works out to a yield on cost of 2.41%.

One more piece of investment wisdom to leave you with:
“Those who do not remember the past are condemned to repeat it.” — George Santayana