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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 two-decade holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into International Business Machines Corp (NYSE: IBM) back in 2003: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.

Start date: 09/22/2003
$10,000

09/22/2003
  $29,520

09/19/2023
End date: 09/19/2023
Start price/share: $87.37
End price/share: $146.52
Starting shares: 114.46
Ending shares: 201.34
Dividends reinvested/share: $75.72
Total return: 195.01%
Average annual return: 5.56%
Starting investment: $10,000.00
Ending investment: $29,520.00

As shown above, the two-decade investment result worked out well, with an annualized rate of return of 5.56%. This would have turned a $10K investment made 20 years ago into $29,520.00 today (as of 09/19/2023). On a total return basis, that’s a result of 195.01% (something to think about: how might IBM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that International Business Machines Corp paid investors a total of $75.72/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 6.64/share, we calculate that IBM has a current yield of approximately 4.53%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.64 against the original $87.37/share purchase price. This works out to a yield on cost of 5.18%.

One more investment quote to leave you with:
“You make most of your money in a bear market, you just don’t realize it at the time.” — Shelby Davis