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“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

— Warren Buffett

The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a twenty year period?

Today, let’s look backwards in time to 2004, and take a look at what happened to investors who asked that very question about Micron Technology Inc. (NASD: MU), by taking a look at the investment outcome over a twenty year holding period.

Start date: 11/12/2004
$10,000

11/12/2004
  $92,359

11/11/2024
End date: 11/11/2024
Start price/share: $12.01
End price/share: $108.65
Starting shares: 832.64
Ending shares: 849.54
Dividends reinvested/share: $1.45
Total return: 823.03%
Average annual return: 11.75%
Starting investment: $10,000.00
Ending investment: $92,359.03

As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 11.75%. This would have turned a $10K investment made 20 years ago into $92,359.03 today (as of 11/11/2024). On a total return basis, that’s a result of 823.03% (something to think about: how might MU shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Micron Technology Inc. paid investors a total of $1.45/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 .46/share, we calculate that MU has a current yield of approximately 0.42%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .46 against the original $12.01/share purchase price. This works out to a yield on cost of 3.50%.

Another great investment quote to think about:
“Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.” — Warren Buffett