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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 Walmart Inc (NYSE: WMT), by taking a look at the investment outcome over a five year holding period.

Start date: 02/23/2016


End date: 02/22/2021
Start price/share: $66.48
End price/share: $137.69
Starting shares: 150.42
Ending shares: 168.62
Dividends reinvested/share: $10.40
Total return: 132.18%
Average annual return: 18.34%
Starting investment: $10,000.00
Ending investment: $23,219.78

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 18.34%. This would have turned a $10K investment made 5 years ago into $23,219.78 today (as of 02/22/2021). On a total return basis, that’s a result of 132.18% (something to think about: how might WMT shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Walmart Inc paid investors a total of $10.40/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 2.2/share, we calculate that WMT has a current yield of approximately 1.60%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.2 against the original $66.48/share purchase price. This works out to a yield on cost of 2.41%.

Another great investment quote to think about:
“Buy not on optimism, but on arithmetic.” — Benjamin Graham