“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 Home Depot Inc (NYSE: HD), by taking a look at the investment outcome over a five year holding period.
|Average annual return:||21.90%|
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 21.90%. This would have turned a $10K investment made 5 years ago into $26,887.31 today (as of 07/30/2021). On a total return basis, that’s a result of 168.92% (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.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 5 years, Home Depot Inc has paid $23.80/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 6.6/share, we calculate that HD has a current yield of approximately 2.01%. 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 $137.22/share purchase price. This works out to a yield on cost of 1.46%.
One more piece of investment wisdom to leave you with:
“Behind every stock is a company. Find out what it’s doing.” — Peter Lynch