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

— 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 Cigna Corp (NYSE: CI) back in 2000, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 01/24/2000
$10,000

01/24/2000
$97,275

01/23/2020
End date: 01/23/2020
Start price/share: $23.98
End price/share: $212.70
Starting shares: 417.01
Ending shares: 457.25
Dividends reinvested/share: $2.44
Total return: 872.58%
Average annual return: 12.04%
Starting investment: $10,000.00
Ending investment: $97,275.41

As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 12.04%. This would have turned a $10K investment made 20 years ago into $97,275.41 today (as of 01/23/2020). On a total return basis, that’s a result of 872.58% (something to think about: how might CI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Cigna Corp paid investors a total of $2.44/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 .04/share, we calculate that CI has a current yield of approximately 0.02%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .04 against the original $23.98/share purchase price. This works out to a yield on cost of 0.08%.

Here’s one more great investment quote before you go:
“The greater the passive income you can build, the freer you will become.” — Todd Fleming