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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 Franklin Resources Inc (NYSE: BEN) back in 2000: 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: 08/21/2000


End date: 08/19/2020
Start price/share: $11.94
End price/share: $21.67
Starting shares: 837.52
Ending shares: 1,287.95
Dividends reinvested/share: $14.02
Total return: 179.10%
Average annual return: 5.26%
Starting investment: $10,000.00
Ending investment: $27,890.11

As shown above, the two-decade investment result worked out well, with an annualized rate of return of 5.26%. This would have turned a $10K investment made 20 years ago into $27,890.11 today (as of 08/19/2020). On a total return basis, that’s a result of 179.10% (something to think about: how might BEN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Franklin Resources Inc paid investors a total of $14.02/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 1.08/share, we calculate that BEN has a current yield of approximately 4.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.08 against the original $11.94/share purchase price. This works out to a yield on cost of 41.71%.

More investment wisdom to ponder:
“When I was young I thought that money was the most important thing in life; now that I am old I know that it is.” — Oscar Wilde