Photo credit:

“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 two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Hershey Company (NYSE: HSY) back in 2000. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 02/07/2000


End date: 02/04/2020
Start price/share: $20.50
End price/share: $152.44
Starting shares: 487.80
Ending shares: 769.24
Dividends reinvested/share: $29.60
Total return: 1,072.63%
Average annual return: 13.09%
Starting investment: $10,000.00
Ending investment: $117,159.31

As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 13.09%. This would have turned a $10K investment made 20 years ago into $117,159.31 today (as of 02/04/2020). On a total return basis, that’s a result of 1,072.63% (something to think about: how might HSY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Hershey Company paid investors a total of $29.60/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 3.092/share, we calculate that HSY has a current yield of approximately 2.03%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.092 against the original $20.50/share purchase price. This works out to a yield on cost of 9.90%.

One more investment quote to leave you with:
“The function of economic forecasting is to make astrology look respectable.” — John Galbraith