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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

One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a five year holding period for an investor who was considering Eli Lilly (NYSE: LLY) back in 2016, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 11/18/2016


End date: 11/17/2021
Start price/share: $76.67
End price/share: $261.18
Starting shares: 130.43
Ending shares: 145.31
Dividends reinvested/share: $13.27
Total return: 279.53%
Average annual return: 30.57%
Starting investment: $10,000.00
Ending investment: $37,950.46

The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 30.57%. This would have turned a $10K investment made 5 years ago into $37,950.46 today (as of 11/17/2021). On a total return basis, that’s a result of 279.53% (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 $13.27/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 1.30%. 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 $76.67/share purchase price. This works out to a yield on cost of 1.70%.

Here’s one more great investment quote before you go:
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch