“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into FirstEnergy Corp (NYSE: FE)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 04/24/2014 |
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| End date: | 04/23/2019 | ||||
| Start price/share: | $34.18 | ||||
| End price/share: | $40.74 | ||||
| Starting shares: | 292.57 | ||||
| Ending shares: | 362.21 | ||||
| Dividends reinvested/share: | $7.22 | ||||
| Total return: | 47.56% | ||||
| Average annual return: | 8.09% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,754.60 | ||||
The above analysis shows the five year investment result worked out well, with an annualized rate of return of 8.09%. This would have turned a $10K investment made 5 years ago into $14,754.60 today (as of 04/23/2019). On a total return basis, that’s a result of 47.56% (something to think about: how might FE shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that FirstEnergy Corp paid investors a total of $7.22/share in dividends over the 5 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 1.52/share, we calculate that FE has a current yield of approximately 3.73%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.52 against the original $34.18/share purchase price. This works out to a yield on cost of 10.91%.
Another great investment quote to think about:
“Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.” — Warren Buffett
