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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

This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a five year holding period potentially?

For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 5 years to 2018, investors considering an investment into shares of Cummins, Inc. (NYSE: CMI) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.

Start date: 03/15/2018


End date: 03/14/2023
Start price/share: $160.16
End price/share: $237.79
Starting shares: 62.44
Ending shares: 71.70
Dividends reinvested/share: $26.75
Total return: 70.50%
Average annual return: 11.26%
Starting investment: $10,000.00
Ending investment: $17,048.86

As we can see, the five year investment result worked out quite well, with an annualized rate of return of 11.26%. This would have turned a $10K investment made 5 years ago into $17,048.86 today (as of 03/14/2023). On a total return basis, that’s a result of 70.50% (something to think about: how might CMI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Cummins, Inc. paid investors a total of $26.75/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 6.28/share, we calculate that CMI has a current yield of approximately 2.64%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.28 against the original $160.16/share purchase price. This works out to a yield on cost of 1.65%.

More investment wisdom to ponder:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham