“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a five year period?
Today, let’s look backwards in time to 2016, and take a look at what happened to investors who asked that very question about UnitedHealth Group Inc (NYSE: UNH), by taking a look at the investment outcome over a five year holding period.
|Average annual return:||25.95%|
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 25.95%. This would have turned a $10K investment made 5 years ago into $31,715.05 today (as of 02/01/2021). On a total return basis, that’s a result of 217.12% (something to think about: how might UNH shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that UnitedHealth Group Inc paid investors a total of $17.67/share in dividends over the 5 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 5/share, we calculate that UNH has a current yield of approximately 1.50%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5 against the original $113.88/share purchase price. This works out to a yield on cost of 1.32%.
One more investment quote to leave you with:
“You’ve got to be careful if you don’t know where you’re going, ’cause you might not get there.” — Yogi Berra