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“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 ten year period?

Today, let’s look backwards in time to 2012, and take a look at what happened to investors who asked that very question about Illinois Tool Works, Inc. (NYSE: ITW), by taking a look at the investment outcome over a ten year holding period.

Start date: 05/07/2012


End date: 05/04/2022
Start price/share: $56.76
End price/share: $213.01
Starting shares: 176.18
Ending shares: 221.80
Dividends reinvested/share: $29.92
Total return: 372.46%
Average annual return: 16.80%
Starting investment: $10,000.00
Ending investment: $47,232.80

As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 16.80%. This would have turned a $10K investment made 10 years ago into $47,232.80 today (as of 05/04/2022). On a total return basis, that’s a result of 372.46% (something to think about: how might ITW shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Illinois Tool Works, Inc. paid investors a total of $29.92/share in dividends over the 10 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 4.88/share, we calculate that ITW has a current yield of approximately 2.29%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.88 against the original $56.76/share purchase price. This works out to a yield on cost of 4.03%.

Another great investment quote to think about:
“Sentimentality about an investments leads to lack of discipline.” — Sam Zell