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 twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Dover Corp (NYSE: DOV) 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: 04/27/2000


End date: 04/24/2020
Start price/share: $34.48
End price/share: $90.97
Starting shares: 290.02
Ending shares: 428.34
Dividends reinvested/share: $17.52
Total return: 289.66%
Average annual return: 7.04%
Starting investment: $10,000.00
Ending investment: $39,001.73

As we can see, the twenty year investment result worked out well, with an annualized rate of return of 7.04%. This would have turned a $10K investment made 20 years ago into $39,001.73 today (as of 04/24/2020). On a total return basis, that’s a result of 289.66% (something to think about: how might DOV shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Dover Corp paid investors a total of $17.52/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 1.96/share, we calculate that DOV has a current yield of approximately 2.15%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.96 against the original $34.48/share purchase price. This works out to a yield on cost of 6.24%.

One more investment quote to leave you with:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett