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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 Microsoft Corporation (NASD: MSFT), by taking a look at the investment outcome over a twenty year holding period.

Start date: 12/06/1999


End date: 12/03/2019
Start price/share: $47.72
End price/share: $149.31
Starting shares: 209.56
Ending shares: 324.00
Dividends reinvested/share: $17.54
Total return: 383.76%
Average annual return: 8.20%
Starting investment: $10,000.00
Ending investment: $48,387.45

As shown above, the twenty year investment result worked out well, with an annualized rate of return of 8.20%. This would have turned a $10K investment made 20 years ago into $48,387.45 today (as of 12/03/2019). On a total return basis, that’s a result of 383.76% (something to think about: how might MSFT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Microsoft Corporation paid investors a total of $17.54/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 2.04/share, we calculate that MSFT has a current yield of approximately 1.37%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.04 against the original $47.72/share purchase price. This works out to a yield on cost of 2.87%.

More investment wisdom to ponder:
“The older I get, the more I see a straight path where I want to go. If you’re going to hunt elephants, don’t get off the trail for a rabbit.” — T. Boone Pickens