Photo credit: commons.wikimedia.org

“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 Tyson Foods Inc (NYSE: TSN) 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: 03/16/2001
$10,000

03/16/2001
$76,025

03/15/2021
End date: 03/15/2021
Start price/share: $13.06
End price/share: $76.58
Starting shares: 765.70
Ending shares: 993.32
Dividends reinvested/share: $9.61
Total return: 660.68%
Average annual return: 10.67%
Starting investment: $10,000.00
Ending investment: $76,025.64

The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 10.67%. This would have turned a $10K investment made 20 years ago into $76,025.64 today (as of 03/15/2021). On a total return basis, that’s a result of 660.68% (something to think about: how might TSN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Tyson Foods Inc paid investors a total of $9.61/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 1.78/share, we calculate that TSN has a current yield of approximately 2.32%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.78 against the original $13.06/share purchase price. This works out to a yield on cost of 17.76%.

One more investment quote to leave you with:
“Value investing means really asking what are the best values, and not assuming that because something looks expensive that it is, or assuming that because a stock is down in price and trades at low multiples that it is a bargain.” — Bill Miller