“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— 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 decade-long period?
Today, let’s look backwards in time to 2013, and take a look at what happened to investors who asked that very question about HCA Healthcare Inc (NYSE: HCA), by taking a look at the investment outcome over a decade-long holding period.
|Average annual return:||22.97%|
As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 22.97%. This would have turned a $10K investment made 10 years ago into $79,111.16 today (as of 07/18/2023). On a total return basis, that’s a result of 691.03% (something to think about: how might HCA shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that HCA Healthcare Inc paid investors a total of $9.13/share in dividends over the 10 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 2.4/share, we calculate that HCA has a current yield of approximately 0.83%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.4 against the original $38.63/share purchase price. This works out to a yield on cost of 2.15%.
More investment wisdom to ponder:
“In investing, what is comfortable is rarely profitable.” — Robert Arnott