“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 ten year period?
Today, let’s look backwards in time to 2014, 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 ten year holding period.
| Start date: | 09/11/2014 |
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| End date: | 09/10/2024 | ||||
| Start price/share: | $129.40 | ||||
| End price/share: | $346.42 | ||||
| Starting shares: | 77.28 | ||||
| Ending shares: | 82.91 | ||||
| Dividends reinvested/share: | $22.43 | ||||
| Total return: | 187.23% | ||||
| Average annual return: | 11.12% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,719.26 | ||||
As we can see, the ten year investment result worked out quite well, with an annualized rate of return of 11.12%. This would have turned a $10K investment made 10 years ago into $28,719.26 today (as of 09/10/2024). On a total return basis, that’s a result of 187.23% (something to think about: how might HUM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Humana Inc. paid investors a total of $22.43/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 3.54/share, we calculate that HUM has a current yield of approximately 1.02%. 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 $129.40/share purchase price. This works out to a yield on cost of 0.79%.
Another great investment quote to think about:
“People who invest make money for themselves; people who speculate make money for their brokers.” — Benjamin Graham
