“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 decade-long period?
Today, let’s look backwards in time to 2013, and take a look at what happened to investors who asked that very question about Merck & Co Inc (NYSE: MRK), by taking a look at the investment outcome over a decade-long holding period.
|Average annual return:||13.51%|
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 13.51%. This would have turned a $10K investment made 10 years ago into $35,496.90 today (as of 06/30/2023). On a total return basis, that’s a result of 254.95% (something to think about: how might MRK shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Merck & Co Inc paid investors a total of $21.11/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 2.92/share, we calculate that MRK has a current yield of approximately 2.53%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.92 against the original $44.42/share purchase price. This works out to a yield on cost of 5.70%.
One more piece of investment wisdom to leave you with:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” — Warren Buffett