“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into CVS Health Corporation (NYSE: CVS)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 11/22/1999 |
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| End date: | 11/20/2019 | ||||
| Start price/share: | $20.06 | ||||
| End price/share: | $74.92 | ||||
| Starting shares: | 498.50 | ||||
| Ending shares: | 643.68 | ||||
| Dividends reinvested/share: | $14.23 | ||||
| Total return: | 382.24% | ||||
| Average annual return: | 8.18% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $48,219.22 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 8.18%. This would have turned a $10K investment made 20 years ago into $48,219.22 today (as of 11/20/2019). On a total return basis, that’s a result of 382.24% (something to think about: how might CVS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CVS Health Corporation paid investors a total of $14.23/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 2/share, we calculate that CVS has a current yield of approximately 2.67%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $20.06/share purchase price. This works out to a yield on cost of 13.31%.
One more piece of investment wisdom to leave you with:
“Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety.” — Benjamin Graham
