“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade 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 two-decade investment into the stock back in 2003.
| Start date: | 07/07/2003 |
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| End date: | 07/06/2023 | ||||
| Start price/share: | $65.06 | ||||
| End price/share: | $96.31 | ||||
| Starting shares: | 153.70 | ||||
| Ending shares: | 267.48 | ||||
| Dividends reinvested/share: | $69.40 | ||||
| Total return: | 157.61% | ||||
| Average annual return: | 4.84% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,749.29 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 4.84%. This would have turned a $10K investment made 20 years ago into $25,749.29 today (as of 07/06/2023). On a total return basis, that’s a result of 157.61% (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 $69.40/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 6/share, we calculate that MMM has a current yield of approximately 6.23%. 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 $65.06/share purchase price. This works out to a yield on cost of 9.58%.
Another great investment quote to think about:
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” — Warren Buffett
