“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a twenty year holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in CVS Health Corporation (NYSE: CVS) back in 2004, holding through to today.
| Start date: | 09/17/2004 |
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| End date: | 09/16/2024 | ||||
| Start price/share: | $20.54 | ||||
| End price/share: | $58.37 | ||||
| Starting shares: | 486.85 | ||||
| Ending shares: | 700.00 | ||||
| Dividends reinvested/share: | $24.29 | ||||
| Total return: | 308.59% | ||||
| Average annual return: | 7.29% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $40,880.84 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 7.29%. This would have turned a $10K investment made 20 years ago into $40,880.84 today (as of 09/16/2024). On a total return basis, that’s a result of 308.59% (something to think about: how might CVS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of CVS Health Corporation, investors have received $24.29/share in dividends these past 20 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use closing price on ex-date).
Based upon the most recent annualized dividend rate of 2.66/share, we calculate that CVS has a current yield of approximately 4.56%. 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 $20.54/share purchase price. This works out to a yield on cost of 22.20%.
Here’s one more great investment quote before you go:
“Never is there a better time to buy a stock than when a basically sound company, for whatever reason, temporarily falls out of favor with the investment community.” — Geraldine Weiss
