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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 2016, and take a look at what happened to investors who asked that very question about Moody’s Corp. (NYSE: MCO), by taking a look at the investment outcome over a five year holding period.

Start date: 01/13/2016


End date: 01/12/2021
Start price/share: $87.11
End price/share: $274.06
Starting shares: 114.80
Ending shares: 121.51
Dividends reinvested/share: $9.00
Total return: 233.02%
Average annual return: 27.19%
Starting investment: $10,000.00
Ending investment: $33,308.19

The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 27.19%. This would have turned a $10K investment made 5 years ago into $33,308.19 today (as of 01/12/2021). On a total return basis, that’s a result of 233.02% (something to think about: how might MCO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Moody’s Corp. paid investors a total of $9.00/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 2.24/share, we calculate that MCO has a current yield of approximately 0.82%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.24 against the original $87.11/share purchase price. This works out to a yield on cost of 0.94%.

More investment wisdom to ponder:
“Every once in a while, the market does something so stupid it takes your breath away.” — Jim Cramer