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

— 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 T Rowe Price Group Inc. (NASD: TROW) back in 1999: 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: 06/24/1999
$10,000

06/24/1999
$94,813

06/21/2019
End date: 06/21/2019
Start price/share: $17.94
End price/share: $108.32
Starting shares: 557.41
Ending shares: 875.91
Dividends reinvested/share: $26.28
Total return: 848.79%
Average annual return: 11.90%
Starting investment: $10,000.00
Ending investment: $94,813.31

As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 11.90%. This would have turned a $10K investment made 20 years ago into $94,813.31 today (as of 06/21/2019). On a total return basis, that’s a result of 848.79% (something to think about: how might TROW shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that T Rowe Price Group Inc. paid investors a total of $26.28/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 3.04/share, we calculate that TROW has a current yield of approximately 2.81%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.04 against the original $17.94/share purchase price. This works out to a yield on cost of 15.66%.

Here’s one more great investment quote before you go:
“Know what you own and why you own it.” — Peter Lynch