“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Eli Lilly (NYSE: LLY) back in 2005: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 03/28/2005 |
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| End date: | 03/26/2025 | ||||
| Start price/share: | $52.75 | ||||
| End price/share: | $826.76 | ||||
| Starting shares: | 189.57 | ||||
| Ending shares: | 344.18 | ||||
| Dividends reinvested/share: | $50.53 | ||||
| Total return: | 2,745.50% | ||||
| Average annual return: | 18.22% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $284,588.54 | ||||
As we can see, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 18.22%. This would have turned a $10K investment made 20 years ago into $284,588.54 today (as of 03/26/2025). On a total return basis, that’s a result of 2,745.50% (something to think about: how might LLY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Eli Lilly paid investors a total of $50.53/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 LLY has a current yield of approximately 0.73%. 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 $52.75/share purchase price. This works out to a yield on cost of 1.38%.
Another great investment quote to think about:
“Nearly every time I strayed from the herd, I’ve made a lot of money. Wandering away from the action is the way to find the new action.” — Jim Rogers
