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

— 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 Amgen Inc (NASD: AMGN) 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: 10/26/2001


End date: 10/25/2021
Start price/share: $59.45
End price/share: $207.63
Starting shares: 168.21
Ending shares: 215.56
Dividends reinvested/share: $40.84
Total return: 347.57%
Average annual return: 7.78%
Starting investment: $10,000.00
Ending investment: $44,783.72

As we can see, the twenty year investment result worked out well, with an annualized rate of return of 7.78%. This would have turned a $10K investment made 20 years ago into $44,783.72 today (as of 10/25/2021). On a total return basis, that’s a result of 347.57% (something to think about: how might AMGN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Amgen Inc paid investors a total of $40.84/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 7.04/share, we calculate that AMGN has a current yield of approximately 3.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 7.04 against the original $59.45/share purchase price. This works out to a yield on cost of 5.70%.

Here’s one more great investment quote before you go:
“Be fearful when others are greedy; be greedy when others are fearful.” — Warren Buffett