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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 twenty year holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into Walmart Inc (NYSE: WMT) back in 2000: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.

Start date: 11/02/2000


End date: 10/30/2020
Start price/share: $48.44
End price/share: $138.75
Starting shares: 206.45
Ending shares: 300.21
Dividends reinvested/share: $25.60
Total return: 316.54%
Average annual return: 7.39%
Starting investment: $10,000.00
Ending investment: $41,625.71

As shown above, the twenty year investment result worked out well, with an annualized rate of return of 7.39%. This would have turned a $10K investment made 20 years ago into $41,625.71 today (as of 10/30/2020). On a total return basis, that’s a result of 316.54% (something to think about: how might WMT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Walmart Inc paid investors a total of $25.60/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 2.16/share, we calculate that WMT has a current yield of approximately 1.56%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.16 against the original $48.44/share purchase price. This works out to a yield on cost of 3.22%.

Here’s one more great investment quote before you go:
“Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.” — Warren Buffett