“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 Cardinal Health, Inc. (NYSE: CAH)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 07/14/2000 |
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| End date: | 07/13/2020 | ||||
| Start price/share: | $45.33 | ||||
| End price/share: | $49.87 | ||||
| Starting shares: | 220.60 | ||||
| Ending shares: | 422.31 | ||||
| Dividends reinvested/share: | $27.21 | ||||
| Total return: | 110.61% | ||||
| Average annual return: | 3.79% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,051.71 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 3.79%. This would have turned a $10K investment made 20 years ago into $21,051.71 today (as of 07/13/2020). On a total return basis, that’s a result of 110.61% (something to think about: how might CAH shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cardinal Health, Inc. paid investors a total of $27.21/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 1.9436/share, we calculate that CAH has a current yield of approximately 3.90%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.9436 against the original $45.33/share purchase price. This works out to a yield on cost of 8.60%.
One more piece of investment wisdom to leave you with:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
