“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 2003, and take a look at what happened to investors who asked that very question about Humana Inc. (NYSE: HUM), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 06/12/2003 |
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| End date: | 06/09/2023 | ||||
| Start price/share: | $15.07 | ||||
| End price/share: | $513.34 | ||||
| Starting shares: | 663.57 | ||||
| Ending shares: | 733.14 | ||||
| Dividends reinvested/share: | $21.41 | ||||
| Total return: | 3,663.48% | ||||
| Average annual return: | 19.88% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $376,154.42 | ||||
The above analysis shows the twenty year investment result worked out exceptionally well, with an annualized rate of return of 19.88%. This would have turned a $10K investment made 20 years ago into $376,154.42 today (as of 06/09/2023). On a total return basis, that’s a result of 3,663.48% (something to think about: how might HUM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Humana Inc. paid investors a total of $21.41/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 3.54/share, we calculate that HUM has a current yield of approximately 0.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.54 against the original $15.07/share purchase price. This works out to a yield on cost of 4.58%.
Another great investment quote to think about:
“If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.” — Warren Buffett
