“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy emphasizes purchasing quality businesses and holding them for very long periods of time. A twenty-year holding period — or even longer — is entirely consistent with that approach. One practical way many retirees and long-term savers can apply this philosophy is by putting required minimum distributions (RMDs) or other periodic withdrawals back to work in equities rather than immediately consuming all of the cash flow.
How would such a strategy have worked out for an investor who, back in 2006, chose to allocate $10,000 of capital — for example, from an RMD or similar withdrawal — into shares of ResMed Inc. (NYSE: RMD), and then simply held and reinvested dividends for twenty years?
ResMed is a global medical technology company focused primarily on sleep and respiratory disorders. The company develops and sells devices such as continuous positive airway pressure (CPAP) machines, masks, and related software solutions used to diagnose and treat obstructive sleep apnea and other chronic respiratory conditions. Supported by long-term secular trends — aging populations, increased awareness and diagnosis of sleep apnea, and a growing emphasis on home-based care and digital health monitoring — ResMed has delivered substantial growth in both earnings and market capitalization over the past two decades.
The figures below illustrate how a patient, buy-and-hold investor in RMD would have fared over a full twenty-year period, assuming dividends were reinvested.
| Start date: | 03/20/2006 |
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| End date: | 03/19/2026 | ||||
| Start price/share: | $20.76 | ||||
| End price/share: | $227.41 | ||||
| Starting shares: | 481.70 | ||||
| Ending shares: | 581.18 | ||||
| Dividends reinvested/share: | $20.60 | ||||
| Total return: | 1,221.66% | ||||
| Average annual return: | 13.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $132,134.33 | ||||
As the table shows, the twenty-year investment result worked out very well, with an annualized rate of return of 13.77%. That means a $10,000 allocation made twenty years ago would have grown into $132,134.33 by 03/19/2026, assuming dividends were fully reinvested. On a total return basis, that translates into a gain of 1,221.66%.
To put this in context, long-run historical returns for broad U.S. equity indexes such as the S&P 500 have typically ranged around 9%–10% annualized, including dividends. On that basis, RMD’s 13.77% compound annual growth rate over the period materially outpaced the broader market, illustrating the power of combining above-average earnings growth with consistent dividend reinvestment.
The figures above were computed using the Dividend Channel DRIP Returns Calculator, which assumes that every cash dividend is automatically reinvested into additional shares at the closing price on the ex-dividend date.
The Role Of Dividends And Reinvestment
Always an important consideration with a dividend-paying company is whether to reinvest dividends or take them as cash. Over the past 20 years, ResMed Inc. has paid $20.60 per share in dividends, according to the calculations summarized above. In this analysis, the investor elected to reinvest every dividend payment back into additional RMD shares.
That decision meaningfully increased the final share count: the original 481.70 shares grew to 581.18 shares by 03/19/2026, entirely through the reinvestment of dividends. Without dividend reinvestment, the investor would still benefit from RMD’s price appreciation, but they would own fewer shares and the ending portfolio value would be lower than the $132,134.33 figure shown.
This is a direct illustration of the compounding effect that Warren Buffett often highlights. When dividends are reinvested into a company that continues to grow earnings and cash flows, each share purchased with past dividends can itself generate future dividends and capital gains, reinforcing the compounding process over time.
Dividend Yield Today Versus Yield On Cost
Based upon the most recent annualized dividend rate of $2.40 per share, we calculate that RMD has a current yield of approximately 1.06%. While that current yield may appear modest relative to traditional “high-yield” income stocks, it is only one dimension of the income picture for a long-term investor.
Another important datapoint is the concept of “yield on cost” — that is, the current annualized dividend expressed as a percentage of the original purchase price. Using the initial $20.76 per-share cost basis from 2006, the $2.40 per-share annual dividend equates to a yield on cost of 5.11%.
In other words, for an investor who established a position twenty years ago and held through to 2026, RMD is now producing an annual cash dividend stream equal to more than 5% of the original capital deployed, before considering any further dividend growth from here. This is one of the key attractions of long-term ownership of growing dividend payers: the income profile can become significantly more attractive over time, even if the current yield for new investors remains relatively modest.
Business Performance Behind The Numbers
ResMed’s share price appreciation over the past two decades has been underpinned by fundamental growth in its underlying business. During this period, the company expanded from a niche provider of sleep apnea devices into a broader respiratory care and digital health platform. Key drivers have included:
- Rising global awareness and diagnosis rates for obstructive sleep apnea and related conditions.
- Innovation in mask and device design, improving patient comfort and adherence.
- Expansion into cloud-connected devices and remote patient monitoring platforms that improve treatment compliance and data analytics capabilities for clinicians.
- Broader adoption of home-based sleep testing and therapy, supported by reimbursement frameworks in major healthcare markets.
While the stock experienced periods of volatility driven by macroeconomic conditions, reimbursement uncertainty, and competitive dynamics in the medical device space, the overall trajectory of earnings and free cash flow growth has been positive. That long-term business performance, rather than short-term market sentiment, is what ultimately powered the 13.77% annualized shareholder return profile over the twenty-year window studied.
An Illustration Of Long-Term Compounding
From a financial planning perspective, the RMD example also offers a concrete case study for retirees managing required minimum distributions. Instead of viewing RMDs solely as a forced liquidation from tax-advantaged accounts, investors with sufficient flexibility can treat a portion of those withdrawals as fresh capital to be redeployed in taxable accounts or other investment vehicles. When paired with a disciplined, long-term strategy focused on quality businesses and reinvestment of dividends, even a single $10,000 tranche can grow into a six-figure asset over time.
Of course, each investor’s situation is unique, and decisions around RMDs, tax considerations, risk tolerance, and asset allocation should be made in consultation with qualified financial and tax advisers. Individual stock positions, including RMD, also carry company-specific risks — such as product recalls, regulatory changes, competition, and technological disruption — that must be carefully weighed against potential rewards.
Nevertheless, the twenty-year performance of ResMed serves as a compelling reminder of the potential benefits of patience, compounding, and staying invested through market cycles. As always, past performance does not guarantee future results, and there is no assurance that RMD shares will perform similarly over the next twenty years. But for investors aligned with Buffett’s long-term mindset, the case study underscores how powerful time in the market can be when combined with growing dividends and reinvestment.
Another investment quote from Warren Buffett worth reflecting on in this context:
“The stock market is a device to transfer money from the impatient to the patient.” — Warren Buffett
