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“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

— 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 twenty year period?

Today, let’s look backwards in time to 1999, and take a look at what happened to investors who asked that very question about Applied Materials, Inc. (NASD: AMAT), by taking a look at the investment outcome over a twenty year holding period.

Start date: 04/26/1999
$10,000

04/26/1999
$36,803

04/23/2019
End date: 04/23/2019
Start price/share: $15.19
End price/share: $43.83
Starting shares: 658.33
Ending shares: 840.27
Dividends reinvested/share: $4.71
Total return: 268.29%
Average annual return: 6.73%
Starting investment: $10,000.00
Ending investment: $36,803.17

As we can see, the twenty year investment result worked out well, with an annualized rate of return of 6.73%. This would have turned a $10K investment made 20 years ago into $36,803.17 today (as of 04/23/2019). On a total return basis, that’s a result of 268.29% (something to think about: how might AMAT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Applied Materials, Inc. paid investors a total of $4.71/share in dividends over the 20 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 .84/share, we calculate that AMAT has a current yield of approximately 1.92%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .84 against the original $15.19/share purchase price. This works out to a yield on cost of 12.64%.

Another great investment quote to think about:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer