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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 Morgan Stanley (NYSE: MS), by taking a look at the investment outcome over a five year holding period.

Start date: 02/28/2019


End date: 02/27/2024
Start price/share: $41.98
End price/share: $85.49
Starting shares: 238.21
Ending shares: 278.30
Dividends reinvested/share: $11.55
Total return: 137.92%
Average annual return: 18.93%
Starting investment: $10,000.00
Ending investment: $23,793.43

As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 18.93%. This would have turned a $10K investment made 5 years ago into $23,793.43 today (as of 02/27/2024). On a total return basis, that’s a result of 137.92% (something to think about: how might MS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Morgan Stanley paid investors a total of $11.55/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 3.4/share, we calculate that MS has a current yield of approximately 3.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.4 against the original $41.98/share purchase price. This works out to a yield on cost of 9.48%.

One more piece of investment wisdom to leave you with:
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert Allen