“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 2010.
| Start date: | 12/09/2010 |
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| End date: | 12/08/2020 | ||||
| Start price/share: | $33.59 | ||||
| End price/share: | $73.86 | ||||
| Starting shares: | 297.71 | ||||
| Ending shares: | 366.93 | ||||
| Dividends reinvested/share: | $14.25 | ||||
| Total return: | 171.02% | ||||
| Average annual return: | 10.48% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,106.52 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 10.48%. This would have turned a $10K investment made 10 years ago into $27,106.52 today (as of 12/08/2020). On a total return basis, that’s a result of 171.02% (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 $14.25/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/share, we calculate that CVS has a current yield of approximately 2.71%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $33.59/share purchase price. This works out to a yield on cost of 8.07%.
Here’s one more great investment quote before you go:
“Investing is the intersection of economics and psychology.” — Seth Klarman
