Photo credit:

“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 Microsoft Corporation (NASD: MSFT), by taking a look at the investment outcome over a twenty year holding period.

Start date: 08/23/2001


End date: 08/20/2021
Start price/share: $29.56
End price/share: $304.36
Starting shares: 338.29
Ending shares: 532.04
Dividends reinvested/share: $21.31
Total return: 1,519.32%
Average annual return: 14.93%
Starting investment: $10,000.00
Ending investment: $161,807.73

As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 14.93%. This would have turned a $10K investment made 20 years ago into $161,807.73 today (as of 08/20/2021). On a total return basis, that’s a result of 1,519.32% (something to think about: how might MSFT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Microsoft Corporation paid investors a total of $21.31/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 2.24/share, we calculate that MSFT has a current yield of approximately 0.74%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.24 against the original $29.56/share purchase price. This works out to a yield on cost of 2.50%.

Another great investment quote to think about:
“We ignore outlooks and forecasts… we’re lousy at it and we admit it … everyone else is lousy too, but most people won’t admit it.” — Martin Whitman