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“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

— Warren Buffett

One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering Altria Group Inc (NYSE: MO) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 04/19/2004


End date: 04/18/2024
Start price/share: $56.45
End price/share: $41.30
Starting shares: 177.15
Ending shares: 2,445.20
Dividends reinvested/share: $124.40
Total return: 909.87%
Average annual return: 12.25%
Starting investment: $10,000.00
Ending investment: $100,989.68

As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 12.25%. This would have turned a $10K investment made 20 years ago into $100,989.68 today (as of 04/18/2024). On a total return basis, that’s a result of 909.87% (something to think about: how might MO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Altria Group Inc paid investors a total of $124.40/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 3.92/share, we calculate that MO has a current yield of approximately 9.49%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.92 against the original $56.45/share purchase price. This works out to a yield on cost of 16.81%.

More investment wisdom to ponder:
“Ensure management’s interests are aligned with shareholders.” — Sam Zell