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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 Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Cisco Systems Inc (NASD: CSCO)? Today, we examine the outcome of a five year investment into the stock back in 2017.

Start date: 03/02/2017
$10,000

03/02/2017
$18,497

03/01/2022
End date: 03/01/2022
Start price/share: $34.39
End price/share: $54.62
Starting shares: 290.78
Ending shares: 338.72
Dividends reinvested/share: $6.80
Total return: 85.01%
Average annual return: 13.09%
Starting investment: $10,000.00
Ending investment: $18,497.84

As we can see, the five year investment result worked out quite well, with an annualized rate of return of 13.09%. This would have turned a $10K investment made 5 years ago into $18,497.84 today (as of 03/01/2022). On a total return basis, that’s a result of 85.01% (something to think about: how might CSCO shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Cisco Systems Inc paid investors a total of $6.80/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 1.52/share, we calculate that CSCO has a current yield of approximately 2.78%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.52 against the original $34.39/share purchase price. This works out to a yield on cost of 8.08%.

More investment wisdom to ponder:
“The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” — William O’Neil