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“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

— Warren Buffett

The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Lilly (Eli) & Co (NYSE: LLY)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.

Start date: 05/26/2000
$10,000

05/26/2000
$35,977

05/22/2020
End date: 05/22/2020
Start price/share: $78.81
End price/share: $151.16
Starting shares: 126.88
Ending shares: 238.05
Dividends reinvested/share: $36.53
Total return: 259.84%
Average annual return: 6.61%
Starting investment: $10,000.00
Ending investment: $35,977.84

As we can see, the two-decade investment result worked out well, with an annualized rate of return of 6.61%. This would have turned a $10K investment made 20 years ago into $35,977.84 today (as of 05/22/2020). On a total return basis, that’s a result of 259.84% (something to think about: how might LLY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Lilly (Eli) & Co paid investors a total of $36.53/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 2.96/share, we calculate that LLY has a current yield of approximately 1.96%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.96 against the original $78.81/share purchase price. This works out to a yield on cost of 2.49%.

Another great investment quote to think about:
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” — Charlie Munger