“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 Eli Lilly (NYSE: LLY) 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.
|Average annual return:||30.18%|
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 30.18%. This would have turned a $10K investment made 5 years ago into $37,333.07 today (as of 08/27/2021). On a total return basis, that’s a result of 273.31% (something to think about: how might LLY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Eli Lilly paid investors a total of $12.93/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 3.4/share, we calculate that LLY has a current yield of approximately 1.31%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.4 against the original $77.77/share purchase price. This works out to a yield on cost of 1.68%.
Another great investment quote to think about:
“In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.” — Peter Lynch