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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

Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a five year holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into Verizon Communications Inc (NYSE: VZ) back in 2016: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.

Start date: 06/10/2016


End date: 06/09/2021
Start price/share: $52.67
End price/share: $57.05
Starting shares: 189.86
Ending shares: 237.01
Dividends reinvested/share: $11.99
Total return: 35.22%
Average annual return: 6.22%
Starting investment: $10,000.00
Ending investment: $13,521.71

As shown above, the five year investment result worked out well, with an annualized rate of return of 6.22%. This would have turned a $10K investment made 5 years ago into $13,521.71 today (as of 06/09/2021). On a total return basis, that’s a result of 35.22% (something to think about: how might VZ shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Verizon Communications Inc paid investors a total of $11.99/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 2.51/share, we calculate that VZ has a current yield of approximately 4.40%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.51 against the original $52.67/share purchase price. This works out to a yield on cost of 8.35%.

Another great investment quote to think about:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham