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

— 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 Texas Instruments Inc. (NASD: TXN) back in 2001: 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: 03/05/2001
$10,000

03/05/2001
$69,946

03/03/2021
End date: 03/03/2021
Start price/share: $34.70
End price/share: $170.59
Starting shares: 288.18
Ending shares: 409.92
Dividends reinvested/share: $21.54
Total return: 599.28%
Average annual return: 10.21%
Starting investment: $10,000.00
Ending investment: $69,946.67

The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 10.21%. This would have turned a $10K investment made 20 years ago into $69,946.67 today (as of 03/03/2021). On a total return basis, that’s a result of 599.28% (something to think about: how might TXN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Texas Instruments Inc. paid investors a total of $21.54/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 4.08/share, we calculate that TXN has a current yield of approximately 2.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.08 against the original $34.70/share purchase price. This works out to a yield on cost of 6.89%.

One more investment quote to leave you with:
“Nearly every time I strayed from the herd, I’ve made a lot of money. Wandering away from the action is the way to find the new action.” — Jim Rogers