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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

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 2017, and take a look at what happened to investors who asked that very question about Marsh & McLennan Companies Inc. (NYSE: MMC), by taking a look at the investment outcome over a five year holding period.

Start date: 01/20/2017
$10,000

01/20/2017
$25,448

01/19/2022
End date: 01/19/2022
Start price/share: $67.99
End price/share: $158.27
Starting shares: 147.08
Ending shares: 160.76
Dividends reinvested/share: $8.59
Total return: 154.44%
Average annual return: 20.54%
Starting investment: $10,000.00
Ending investment: $25,448.13

As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 20.54%. This would have turned a $10K investment made 5 years ago into $25,448.13 today (as of 01/19/2022). On a total return basis, that’s a result of 154.44% (something to think about: how might MMC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Marsh & McLennan Companies Inc. paid investors a total of $8.59/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 2.14/share, we calculate that MMC has a current yield of approximately 1.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.14 against the original $67.99/share purchase price. This works out to a yield on cost of 1.99%.

Another great investment quote to think about:
“Buy not on optimism, but on arithmetic.” — Benjamin Graham