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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 twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of TJX Companies (NYSE: TJX) 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: 04/27/2001


End date: 04/26/2021
Start price/share: $3.96
End price/share: $69.28
Starting shares: 2,525.25
Ending shares: 3,165.86
Dividends reinvested/share: $5.32
Total return: 2,093.31%
Average annual return: 16.69%
Starting investment: $10,000.00
Ending investment: $219,486.30

As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 16.69%. This would have turned a $10K investment made 20 years ago into $219,486.30 today (as of 04/26/2021). On a total return basis, that’s a result of 2,093.31% (something to think about: how might TJX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that TJX Companies paid investors a total of $5.32/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 1.04/share, we calculate that TJX has a current yield of approximately 1.50%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.04 against the original $3.96/share purchase price. This works out to a yield on cost of 37.88%.

One more piece of investment wisdom to leave you with:
“In the long run, we are all dead.” — John Maynard Keynes