Photo credit: commons.wikimedia.org

“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
$10,000

06/12/2003
  $376,154

06/09/2023
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