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“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

— Warren Buffett

The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a twenty year period?

Today, let’s look backwards in time to 2001, and take a look at what happened to investors who asked that very question about American Express Co. (NYSE: AXP), by taking a look at the investment outcome over a twenty year holding period.

Start date: 06/01/2001


End date: 05/28/2021
Start price/share: $37.10
End price/share: $160.13
Starting shares: 269.54
Ending shares: 358.23
Dividends reinvested/share: $17.40
Total return: 473.63%
Average annual return: 9.13%
Starting investment: $10,000.00
Ending investment: $57,409.94

As shown above, the twenty year investment result worked out well, with an annualized rate of return of 9.13%. This would have turned a $10K investment made 20 years ago into $57,409.94 today (as of 05/28/2021). On a total return basis, that’s a result of 473.63% (something to think about: how might AXP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that American Express Co. paid investors a total of $17.40/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 1.72/share, we calculate that AXP has a current yield of approximately 1.07%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.72 against the original $37.10/share purchase price. This works out to a yield on cost of 2.88%.

Another great investment quote to think about:
“Investors should purchase stocks like they purchase groceries, not like they purchase perfume.” — Benjamin Graham