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

— Warren Buffett

Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into Hess Corp (NYSE: HES) back in 1999: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.

Start date: 09/27/1999


End date: 09/25/2019
Start price/share: $20.44
End price/share: $63.52
Starting shares: 489.24
Ending shares: 631.47
Dividends reinvested/share: $11.50
Total return: 301.11%
Average annual return: 7.19%
Starting investment: $10,000.00
Ending investment: $40,117.44

As we can see, the two-decade investment result worked out well, with an annualized rate of return of 7.19%. This would have turned a $10K investment made 20 years ago into $40,117.44 today (as of 09/25/2019). On a total return basis, that’s a result of 301.11% (something to think about: how might HES shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Hess Corp paid investors a total of $11.50/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 1/share, we calculate that HES has a current yield of approximately 1.57%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $20.44/share purchase price. This works out to a yield on cost of 7.68%.

One more piece of investment wisdom to leave you with:
“I made my money by selling too soon.” — Bernard Baruch