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

— Warren Buffett

This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a twenty year holding period potentially?

For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 20 years to 2001, investors considering an investment into shares of T Rowe Price Group Inc. (NASD: TROW) may have been pondering this very question and thinking about their potential investment result over a full twenty year time horizon. Here’s how that would have worked out.

Start date: 05/07/2001


End date: 05/05/2021
Start price/share: $17.77
End price/share: $185.33
Starting shares: 562.75
Ending shares: 904.58
Dividends reinvested/share: $32.02
Total return: 1,576.46%
Average annual return: 15.13%
Starting investment: $10,000.00
Ending investment: $167,599.61

As we can see, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 15.13%. This would have turned a $10K investment made 20 years ago into $167,599.61 today (as of 05/05/2021). On a total return basis, that’s a result of 1,576.46% (something to think about: how might TROW shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that T Rowe Price Group Inc. paid investors a total of $32.02/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 4.32/share, we calculate that TROW has a current yield of approximately 2.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.32 against the original $17.77/share purchase price. This works out to a yield on cost of 13.11%.

One more piece of investment wisdom to leave you with:
“When you sell in desperation, you always sell cheap.” — Peter Lynch