Photo credit:

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— Warren Buffett

This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a decade-long holding period potentially?

For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 10 years to 2011, investors considering an investment into shares of Merck & Co Inc (NYSE: MRK) may have been pondering this very question and thinking about their potential investment result over a full decade-long time horizon. Here’s how that would have worked out.

Start date: 01/06/2011


End date: 01/05/2021
Start price/share: $37.06
End price/share: $81.10
Starting shares: 269.83
Ending shares: 378.06
Dividends reinvested/share: $19.03
Total return: 206.60%
Average annual return: 11.85%
Starting investment: $10,000.00
Ending investment: $30,663.83

The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 11.85%. This would have turned a $10K investment made 10 years ago into $30,663.83 today (as of 01/05/2021). On a total return basis, that’s a result of 206.60% (something to think about: how might MRK shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Merck & Co Inc paid investors a total of $19.03/share in dividends over the 10 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 2.6/share, we calculate that MRK has a current yield of approximately 3.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.6 against the original $37.06/share purchase price. This works out to a yield on cost of 8.66%.

Another great investment quote to think about:
“Don’t look for the needle in the haystack, just buy the haystack.” — John Bogle