“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a decade-long period?
Today, let’s look backwards in time to 2009, and take a look at what happened to investors who asked that very question about UnitedHealth Group Inc (NYSE: UNH), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 05/29/2009 |
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| End date: | 05/28/2019 | ||||
| Start price/share: | $26.60 | ||||
| End price/share: | $242.06 | ||||
| Starting shares: | 375.94 | ||||
| Ending shares: | 431.12 | ||||
| Dividends reinvested/share: | $15.75 | ||||
| Total return: | 943.57% | ||||
| Average annual return: | 26.42% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $104,336.63 | ||||
As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 26.42%. This would have turned a $10K investment made 10 years ago into $104,336.63 today (as of 05/28/2019). On a total return basis, that’s a result of 943.57% (something to think about: how might UNH shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that UnitedHealth Group Inc paid investors a total of $15.75/share in dividends over the 10 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 3.6/share, we calculate that UNH has a current yield of approximately 1.49%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.6 against the original $26.60/share purchase price. This works out to a yield on cost of 5.60%.
One more investment quote to leave you with:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
