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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 Wabtec Corp (NYSE: WAB) 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: 05/29/2001


End date: 05/26/2021
Start price/share: $6.60
End price/share: $81.41
Starting shares: 1,515.15
Ending shares: 1,610.25
Dividends reinvested/share: $3.40
Total return: 1,210.90%
Average annual return: 13.73%
Starting investment: $10,000.00
Ending investment: $131,161.67

As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 13.73%. This would have turned a $10K investment made 20 years ago into $131,161.67 today (as of 05/26/2021). On a total return basis, that’s a result of 1,210.90% (something to think about: how might WAB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Wabtec Corp paid investors a total of $3.40/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 .48/share, we calculate that WAB has a current yield of approximately 0.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .48 against the original $6.60/share purchase price. This works out to a yield on cost of 8.94%.

One more investment quote to leave you with:
“All intelligent investing is value investing: acquiring more that you are paying for. You must value the business in order to value the stock.” — Charlie Munger