“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a five year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Deere & Co. (NYSE: DE) back in 2018: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.
| Start date: | 07/06/2018 |
|
|||
| End date: | 07/05/2023 | ||||
| Start price/share: | $139.98 | ||||
| End price/share: | $404.66 | ||||
| Starting shares: | 71.44 | ||||
| Ending shares: | 76.95 | ||||
| Dividends reinvested/share: | $18.44 | ||||
| Total return: | 211.38% | ||||
| Average annual return: | 25.50% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $31,132.83 | ||||
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 25.50%. This would have turned a $10K investment made 5 years ago into $31,132.83 today (as of 07/05/2023). On a total return basis, that’s a result of 211.38% (something to think about: how might DE shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Deere & Co. paid investors a total of $18.44/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 5/share, we calculate that DE has a current yield of approximately 1.24%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5 against the original $139.98/share purchase price. This works out to a yield on cost of 0.89%.
One more piece of investment wisdom to leave you with:
“Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.” — Peter Lynch
