“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 two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Microsoft Corporation (NASD: MSFT) back in 2005: 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: | 05/31/2005 |
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| End date: | 05/29/2025 | ||||
| Start price/share: | $25.80 | ||||
| End price/share: | $458.68 | ||||
| Starting shares: | 387.60 | ||||
| Ending shares: | 557.11 | ||||
| Dividends reinvested/share: | $28.52 | ||||
| Total return: | 2,455.34% | ||||
| Average annual return: | 17.58% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $255,415.47 | ||||
As shown above, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 17.58%. This would have turned a $10K investment made 20 years ago into $255,415.47 today (as of 05/29/2025). On a total return basis, that’s a result of 2,455.34% (something to think about: how might MSFT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Microsoft Corporation paid investors a total of $28.52/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 3.32/share, we calculate that MSFT has a current yield of approximately 0.72%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.32 against the original $25.80/share purchase price. This works out to a yield on cost of 2.79%.
One more piece of investment wisdom to leave you with:
“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” — Charlie Munger
