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

— Warren Buffett

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Horton Inc (NYSE: DHI) back in 1999. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 05/10/1999


End date: 05/08/2019
Start price/share: $5.32
End price/share: $43.23
Starting shares: 1,879.70
Ending shares: 2,451.47
Dividends reinvested/share: $5.07
Total return: 959.77%
Average annual return: 12.52%
Starting investment: $10,000.00
Ending investment: $105,929.16

As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 12.52%. This would have turned a $10K investment made 20 years ago into $105,929.16 today (as of 05/08/2019). On a total return basis, that’s a result of 959.77% (something to think about: how might DHI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Horton Inc paid investors a total of $5.07/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 .6/share, we calculate that DHI has a current yield of approximately 1.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .6 against the original $5.32/share purchase price. This works out to a yield on cost of 26.13%.

One more piece of investment wisdom to leave you with:
“There is nothing riskier than the widespread perception that there is no risk.” — Howard Marks