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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 Mid-America Apartment Communities Inc (NYSE: MAA) 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: 07/30/1999
$10,000

07/30/1999
$166,502

07/29/2019
End date: 07/29/2019
Start price/share: $21.88
End price/share: $119.18
Starting shares: 457.14
Ending shares: 1,397.20
Dividends reinvested/share: $54.05
Total return: 1,565.18%
Average annual return: 15.09%
Starting investment: $10,000.00
Ending investment: $166,502.48

As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 15.09%. This would have turned a $10K investment made 20 years ago into $166,502.48 today (as of 07/29/2019). On a total return basis, that’s a result of 1,565.18% (something to think about: how might MAA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Mid-America Apartment Communities Inc paid investors a total of $54.05/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 3.84/share, we calculate that MAA has a current yield of approximately 3.22%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.84 against the original $21.88/share purchase price. This works out to a yield on cost of 14.72%.

One more piece of investment wisdom to leave you with:
“Generally, the greater the stigma or revulsion, the better the bargain.” — Seth Klarman