“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into 3M Co (NYSE: MMM)? Today, we examine the outcome of a ten year investment into the stock back in 2013.
| Start date: | 03/18/2013 |
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| End date: | 03/15/2023 | ||||
| Start price/share: | $105.41 | ||||
| End price/share: | $102.78 | ||||
| Starting shares: | 94.87 | ||||
| Ending shares: | 127.91 | ||||
| Dividends reinvested/share: | $49.02 | ||||
| Total return: | 31.46% | ||||
| Average annual return: | 2.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,141.08 | ||||
As shown above, the ten year investment result worked out as follows, with an annualized rate of return of 2.77%. This would have turned a $10K investment made 10 years ago into $13,141.08 today (as of 03/15/2023). On a total return basis, that’s a result of 31.46% (something to think about: how might MMM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that 3M Co paid investors a total of $49.02/share in dividends over the 10 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 6/share, we calculate that MMM has a current yield of approximately 5.84%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6 against the original $105.41/share purchase price. This works out to a yield on cost of 5.54%.
One more piece of investment wisdom to leave you with:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett
