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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

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 Costco Wholesale Corp (NASD: COST) back in 2019: 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: 01/03/2019
$10,000

01/03/2019
  $35,433

01/02/2024
End date: 01/02/2024
Start price/share: $200.42
End price/share: $650.65
Starting shares: 49.90
Ending shares: 54.47
Dividends reinvested/share: $40.79
Total return: 254.38%
Average annual return: 28.79%
Starting investment: $10,000.00
Ending investment: $35,433.23

As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 28.79%. This would have turned a $10K investment made 5 years ago into $35,433.23 today (as of 01/02/2024). On a total return basis, that’s a result of 254.38% (something to think about: how might COST shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Costco Wholesale Corp paid investors a total of $40.79/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 4.08/share, we calculate that COST has a current yield of approximately 0.63%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.08 against the original $200.42/share purchase price. This works out to a yield on cost of 0.31%.

One more investment quote to leave you with:
“Cash combined with courage in a time of crisis is priceless.” — Warren Buffett