“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 twenty year period?
Today, let’s look backwards in time to 2002, and take a look at what happened to investors who asked that very question about CVS Health Corporation (NYSE: CVS), by taking a look at the investment outcome over a twenty year holding period.
|Average annual return:||10.82%|
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 10.82%. This would have turned a $10K investment made 20 years ago into $78,092.15 today (as of 06/21/2022). On a total return basis, that’s a result of 680.68% (something to think about: how might CVS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CVS Health Corporation paid investors a total of $19.04/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 2.2/share, we calculate that CVS has a current yield of approximately 2.42%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.2 against the original $15.87/share purchase price. This works out to a yield on cost of 15.25%.
Another great investment quote to think about:
“The investor’s chief problem, even his worst enemy, is likely to be himself.” — Benjamin Graham