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

— Warren Buffett

Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into US Bancorp (NYSE: USB) back in 2002: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.

Start date: 08/19/2002
$10,000

08/19/2002
  $40,720

08/17/2022
End date: 08/17/2022
Start price/share: $22.43
End price/share: $49.03
Starting shares: 445.83
Ending shares: 830.67
Dividends reinvested/share: $22.67
Total return: 307.28%
Average annual return: 7.27%
Starting investment: $10,000.00
Ending investment: $40,720.78

As shown above, the twenty year investment result worked out well, with an annualized rate of return of 7.27%. This would have turned a $10K investment made 20 years ago into $40,720.78 today (as of 08/17/2022). On a total return basis, that’s a result of 307.28% (something to think about: how might USB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that US Bancorp paid investors a total of $22.67/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 1.84/share, we calculate that USB has a current yield of approximately 3.75%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.84 against the original $22.43/share purchase price. This works out to a yield on cost of 16.72%.

Here’s one more great investment quote before you go:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham