“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— 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 ten year holding period for an investor who was considering CVS Health Corporation (NYSE: CVS) back in 2011, bought the stock, ignored the market’s ups and downs, and simply held through to today.
|Average annual return:||11.81%|
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 11.81%. This would have turned a $10K investment made 10 years ago into $30,535.60 today (as of 10/08/2021). On a total return basis, that’s a result of 205.24% (something to think about: how might CVS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of CVS Health Corporation, investors have received $15.38/share in dividends these past 10 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use closing price on ex-date).
Based upon the most recent annualized dividend rate of 2/share, we calculate that CVS has a current yield of approximately 2.37%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $34.37/share purchase price. This works out to a yield on cost of 6.90%.
More investment wisdom to ponder:
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” — Peter Lynch