“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?
A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of The Cigna Group (NYSE: CI) back in 2019. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 06/26/2019 |
|
|||
| End date: | 06/25/2024 | ||||
| Start price/share: | $156.91 | ||||
| End price/share: | $338.80 | ||||
| Starting shares: | 63.73 | ||||
| Ending shares: | 67.73 | ||||
| Dividends reinvested/share: | $16.24 | ||||
| Total return: | 129.48% | ||||
| Average annual return: | 18.06% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $22,946.23 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 18.06%. This would have turned a $10K investment made 5 years ago into $22,946.23 today (as of 06/25/2024). On a total return basis, that’s a result of 129.48% (something to think about: how might CI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that The Cigna Group paid investors a total of $16.24/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 5.6/share, we calculate that CI has a current yield of approximately 1.65%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.6 against the original $156.91/share purchase price. This works out to a yield on cost of 1.05%.
Here’s one more great investment quote before you go:
“Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.” — Peter Lynch
