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“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
$10,000

09/11/2014
  $28,719

09/10/2024
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