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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

One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a five year holding period for an investor who was considering Merck & Co Inc (NYSE: MRK) back in 2018, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 11/23/2018


End date: 11/21/2023
Start price/share: $71.25
End price/share: $102.21
Starting shares: 140.35
Ending shares: 163.44
Dividends reinvested/share: $12.65
Total return: 67.05%
Average annual return: 10.81%
Starting investment: $10,000.00
Ending investment: $16,702.16

As shown above, the five year investment result worked out quite well, with an annualized rate of return of 10.81%. This would have turned a $10K investment made 5 years ago into $16,702.16 today (as of 11/21/2023). On a total return basis, that’s a result of 67.05% (something to think about: how might MRK shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Merck & Co Inc paid investors a total of $12.65/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 2.92/share, we calculate that MRK has a current yield of approximately 2.86%. 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 $71.25/share purchase price. This works out to a yield on cost of 4.01%.

One more investment quote to leave you with:
“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make.” — Bill Gross