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

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 five year 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 5 years to 2016, investors considering an investment into shares of Home Depot Inc (NYSE: HD) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.

Start date: 04/07/2016


End date: 04/06/2021
Start price/share: $133.87
End price/share: $313.78
Starting shares: 74.70
Ending shares: 83.99
Dividends reinvested/share: $22.84
Total return: 163.53%
Average annual return: 21.39%
Starting investment: $10,000.00
Ending investment: $26,358.13

The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 21.39%. This would have turned a $10K investment made 5 years ago into $26,358.13 today (as of 04/06/2021). On a total return basis, that’s a result of 163.53% (something to think about: how might HD shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Home Depot Inc paid investors a total of $22.84/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 6.6/share, we calculate that HD has a current yield of approximately 2.10%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.6 against the original $133.87/share purchase price. This works out to a yield on cost of 1.57%.

Here’s one more great investment quote before you go:
“Only when the tide goes out do you discover who’s been swimming naked.” — Warren Buffett