“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 UnitedHealth Group Inc (NYSE: UNH)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
| Start date: | 04/16/2001 |
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| End date: | 04/12/2021 | ||||
| Start price/share: | $14.56 | ||||
| End price/share: | $376.28 | ||||
| Starting shares: | 686.81 | ||||
| Ending shares: | 816.77 | ||||
| Dividends reinvested/share: | $25.21 | ||||
| Total return: | 2,973.36% | ||||
| Average annual return: | 18.68% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $307,435.86 | ||||
As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 18.68%. This would have turned a $10K investment made 20 years ago into $307,435.86 today (as of 04/12/2021). On a total return basis, that’s a result of 2,973.36% (something to think about: how might UNH shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that UnitedHealth Group Inc paid investors a total of $25.21/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 5/share, we calculate that UNH has a current yield of approximately 1.33%. 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 $14.56/share purchase price. This works out to a yield on cost of 9.13%.
Here’s one more great investment quote before you go:
“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” — Charlie Munger
