“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into CVS Health Corporation (NYSE: CVS)? Today, we examine the outcome of a decade-long investment into the stock back in 2014.
| Start date: | 12/12/2014 |
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| End date: | 12/11/2024 | ||||
| Start price/share: | $89.94 | ||||
| End price/share: | $51.76 | ||||
| Starting shares: | 111.19 | ||||
| Ending shares: | 145.73 | ||||
| Dividends reinvested/share: | $20.38 | ||||
| Total return: | -24.57% | ||||
| Average annual return: | -2.78% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,542.04 | ||||
As we can see, the decade-long investment result worked out poorly, with an annualized rate of return of -2.78%. This would have turned a $10K investment made 10 years ago into $7,542.04 today (as of 12/11/2024). On a total return basis, that’s a result of -24.57% (something to think about: how might CVS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CVS Health Corporation paid investors a total of $20.38/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 2.66/share, we calculate that CVS has a current yield of approximately 5.14%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.66 against the original $89.94/share purchase price. This works out to a yield on cost of 5.71%.
More investment wisdom to ponder:
“I rarely think the market is right. I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it.” — Mark Cuban
