“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering UnitedHealth Group Inc (NYSE: UNH) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 06/28/1999 |
|
|||
| End date: | 06/26/2019 | ||||
| Start price/share: | $7.89 | ||||
| End price/share: | $243.47 | ||||
| Starting shares: | 1,267.43 | ||||
| Ending shares: | 1,467.29 | ||||
| Dividends reinvested/share: | $16.98 | ||||
| Total return: | 3,472.42% | ||||
| Average annual return: | 19.57% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $357,340.78 | ||||
The above analysis shows the twenty year investment result worked out exceptionally well, with an annualized rate of return of 19.57%. This would have turned a $10K investment made 20 years ago into $357,340.78 today (as of 06/26/2019). On a total return basis, that’s a result of 3,472.42% (something to think about: how might UNH shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that UnitedHealth Group Inc paid investors a total of $16.98/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 4.32/share, we calculate that UNH has a current yield of approximately 1.77%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.32 against the original $7.89/share purchase price. This works out to a yield on cost of 22.43%.
One more piece of investment wisdom to leave you with:
“As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.” — Benjamin Graham
