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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 Home Depot Inc (NYSE: HD), by taking a look at the investment outcome over a five year holding period.

Start date: 09/24/2019
$10,000

09/24/2019
  $19,644

09/23/2024
End date: 09/23/2024
Start price/share: $225.41
End price/share: $391.96
Starting shares: 44.36
Ending shares: 50.11
Dividends reinvested/share: $36.67
Total return: 96.41%
Average annual return: 14.45%
Starting investment: $10,000.00
Ending investment: $19,644.44

As shown above, the five year investment result worked out quite well, with an annualized rate of return of 14.45%. This would have turned a $10K investment made 5 years ago into $19,644.44 today (as of 09/23/2024). On a total return basis, that’s a result of 96.41% (something to think about: how might HD shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Home Depot Inc paid investors a total of $36.67/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 9/share, we calculate that HD has a current yield of approximately 2.30%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 9 against the original $225.41/share purchase price. This works out to a yield on cost of 1.02%.

Another great investment quote to think about:
“Those who do not remember the past are condemned to repeat it.” — George Santayana