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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 wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Microsoft Corporation (NASD: MSFT) back in 2017. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 05/19/2017


End date: 05/18/2022
Start price/share: $67.69
End price/share: $254.08
Starting shares: 147.73
Ending shares: 157.76
Dividends reinvested/share: $10.05
Total return: 300.85%
Average annual return: 32.01%
Starting investment: $10,000.00
Ending investment: $40,089.82

As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 32.01%. This would have turned a $10K investment made 5 years ago into $40,089.82 today (as of 05/18/2022). On a total return basis, that’s a result of 300.85% (something to think about: how might MSFT shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Microsoft Corporation paid investors a total of $10.05/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 2.48/share, we calculate that MSFT has a current yield of approximately 0.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $67.69/share purchase price. This works out to a yield on cost of 1.45%.

More investment wisdom to ponder:
“History provides a crucial insight regarding market crises: they are inevitable, painful and ultimately surmountable.” — Shelby Davis