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“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 Danaher Corp (NYSE: DHR) back in 2001. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 03/15/2001
$10,000

03/15/2001
$207,578

03/12/2021
End date: 03/12/2021
Start price/share: $10.97
End price/share: $214.68
Starting shares: 911.58
Ending shares: 967.31
Dividends reinvested/share: $4.35
Total return: 1,976.63%
Average annual return: 16.37%
Starting investment: $10,000.00
Ending investment: $207,578.06

As shown above, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 16.37%. This would have turned a $10K investment made 20 years ago into $207,578.06 today (as of 03/12/2021). On a total return basis, that’s a result of 1,976.63% (something to think about: how might DHR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Danaher Corp paid investors a total of $4.35/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 .84/share, we calculate that DHR has a current yield of approximately 0.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .84 against the original $10.97/share purchase price. This works out to a yield on cost of 3.56%.

Another great investment quote to think about:
“Successful investing is anticipating the anticipations of others.” — John Maynard Keynes