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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

Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a five year holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into Ecolab Inc (NYSE: ECL) back in 2015: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.

Start date: 08/03/2015


End date: 07/31/2020
Start price/share: $115.28
End price/share: $187.08
Starting shares: 86.75
Ending shares: 91.79
Dividends reinvested/share: $8.10
Total return: 71.73%
Average annual return: 11.43%
Starting investment: $10,000.00
Ending investment: $17,174.41

As we can see, the five year investment result worked out quite well, with an annualized rate of return of 11.43%. This would have turned a $10K investment made 5 years ago into $17,174.41 today (as of 07/31/2020). On a total return basis, that’s a result of 71.73% (something to think about: how might ECL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Ecolab Inc paid investors a total of $8.10/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 1.88/share, we calculate that ECL has a current yield of approximately 1.00%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.88 against the original $115.28/share purchase price. This works out to a yield on cost of 0.87%.

One more piece of investment wisdom to leave you with:
“When I was young I thought that money was the most important thing in life; now that I am old I know that it is.” — Oscar Wilde