“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a five year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 5 years to 2016, investors considering an investment into shares of UnitedHealth Group Inc (NYSE: UNH) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.
| Start date: | 11/07/2016 |
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| End date: | 11/04/2021 | ||||
| Start price/share: | $141.93 | ||||
| End price/share: | $456.76 | ||||
| Starting shares: | 70.46 | ||||
| Ending shares: | 75.99 | ||||
| Dividends reinvested/share: | $20.07 | ||||
| Total return: | 247.10% | ||||
| Average annual return: | 28.31% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $34,706.65 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 28.31%. This would have turned a $10K investment made 5 years ago into $34,706.65 today (as of 11/04/2021). On a total return basis, that’s a result of 247.10% (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 $20.07/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 5.8/share, we calculate that UNH has a current yield of approximately 1.27%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.8 against the original $141.93/share purchase price. This works out to a yield on cost of 0.89%.
One more investment quote to leave you with:
“Investors should purchase stocks like they purchase groceries, not like they purchase perfume.” — Benjamin Graham
