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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 two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of 3M Co (NYSE: MMM) back in 2002. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 09/27/2002


End date: 09/26/2022
Start price/share: $56.28
End price/share: $113.00
Starting shares: 177.68
Ending shares: 301.72
Dividends reinvested/share: $65.88
Total return: 240.94%
Average annual return: 6.32%
Starting investment: $10,000.00
Ending investment: $34,087.18

The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 6.32%. This would have turned a $10K investment made 20 years ago into $34,087.18 today (as of 09/26/2022). On a total return basis, that’s a result of 240.94% (something to think about: how might MMM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that 3M Co paid investors a total of $65.88/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 5.96/share, we calculate that MMM has a current yield of approximately 5.27%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.96 against the original $56.28/share purchase price. This works out to a yield on cost of 9.36%.

One more investment quote to leave you with:
“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” — William Feather