Photo credit:

“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— Warren Buffett

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Parker Hannifin Corp (NYSE: PH) back in 2015. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 09/15/2015


End date: 09/14/2020
Start price/share: $108.17
End price/share: $211.44
Starting shares: 92.45
Ending shares: 101.65
Dividends reinvested/share: $14.77
Total return: 114.94%
Average annual return: 16.53%
Starting investment: $10,000.00
Ending investment: $21,496.65

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 16.53%. This would have turned a $10K investment made 5 years ago into $21,496.65 today (as of 09/14/2020). On a total return basis, that’s a result of 114.94% (something to think about: how might PH shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Parker Hannifin Corp paid investors a total of $14.77/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 3.52/share, we calculate that PH has a current yield of approximately 1.66%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.52 against the original $108.17/share purchase price. This works out to a yield on cost of 1.53%.

More investment wisdom to ponder:
“Don’t wait for the perfect time, you will wait forever. Always take advantage of the time you’re given and make it perfect.” — Daymond John