“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?
A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of American Tower Corp (NYSE: AMT) back in 2005. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 05/16/2005 |
|
|||
| End date: | 05/14/2025 | ||||
| Start price/share: | $16.46 | ||||
| End price/share: | $204.50 | ||||
| Starting shares: | 607.53 | ||||
| Ending shares: | 809.21 | ||||
| Dividends reinvested/share: | $47.51 | ||||
| Total return: | 1,554.84% | ||||
| Average annual return: | 15.06% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $165,572.48 | ||||
As shown above, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 15.06%. This would have turned a $10K investment made 20 years ago into $165,572.48 today (as of 05/14/2025). On a total return basis, that’s a result of 1,554.84% (something to think about: how might AMT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American Tower Corp paid investors a total of $47.51/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 6.8/share, we calculate that AMT has a current yield of approximately 3.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.8 against the original $16.46/share purchase price. This works out to a yield on cost of 20.23%.
One more piece of investment wisdom to leave you with:
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger
