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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

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 five year period?

Today, let’s look backwards in time to 2019, and take a look at what happened to investors who asked that very question about International Business Machines Corp (NYSE: IBM), by taking a look at the investment outcome over a five year holding period.

Start date: 01/23/2019


End date: 01/22/2024
Start price/share: $127.05
End price/share: $172.83
Starting shares: 78.71
Ending shares: 100.55
Dividends reinvested/share: $31.93
Total return: 73.77%
Average annual return: 11.69%
Starting investment: $10,000.00
Ending investment: $17,380.87

As we can see, the five year investment result worked out quite well, with an annualized rate of return of 11.69%. This would have turned a $10K investment made 5 years ago into $17,380.87 today (as of 01/22/2024). On a total return basis, that’s a result of 73.77% (something to think about: how might IBM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that International Business Machines Corp paid investors a total of $31.93/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 6.64/share, we calculate that IBM has a current yield of approximately 3.84%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.64 against the original $127.05/share purchase price. This works out to a yield on cost of 3.02%.

More investment wisdom to ponder:
“We ignore outlooks and forecasts… we’re lousy at it and we admit it … everyone else is lousy too, but most people won’t admit it.” — Martin Whitman