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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 twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Hasbro, Inc. (NASD: HAS) 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: 11/16/2001


End date: 11/15/2021
Start price/share: $17.77
End price/share: $99.09
Starting shares: 562.75
Ending shares: 912.97
Dividends reinvested/share: $26.71
Total return: 804.66%
Average annual return: 11.63%
Starting investment: $10,000.00
Ending investment: $90,394.52

As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 11.63%. This would have turned a $10K investment made 20 years ago into $90,394.52 today (as of 11/15/2021). On a total return basis, that’s a result of 804.66% (something to think about: how might HAS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Hasbro, Inc. paid investors a total of $26.71/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 2.72/share, we calculate that HAS has a current yield of approximately 2.74%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.72 against the original $17.77/share purchase price. This works out to a yield on cost of 15.42%.

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