“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Humana Inc. (NYSE: HUM)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 02/24/2000 |
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| End date: | 02/21/2020 | ||||
| Start price/share: | $6.88 | ||||
| End price/share: | $369.67 | ||||
| Starting shares: | 1,454.55 | ||||
| Ending shares: | 1,572.60 | ||||
| Dividends reinvested/share: | $12.07 | ||||
| Total return: | 5,713.43% | ||||
| Average annual return: | 22.52% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $581,598.25 | ||||
As we can see, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 22.52%. This would have turned a $10K investment made 20 years ago into $581,598.25 today (as of 02/21/2020). On a total return basis, that’s a result of 5,713.43% (something to think about: how might HUM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Humana Inc. paid investors a total of $12.07/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 2.2/share, we calculate that HUM has a current yield of approximately 0.60%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.2 against the original $6.88/share purchase price. This works out to a yield on cost of 8.72%.
One more piece of investment wisdom to leave you with:
“The greater the passive income you can build, the freer you will become.” — Todd Fleming
