“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into CMS Energy Corp (NYSE: CMS)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 08/16/1999 |
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| End date: | 08/14/2019 | ||||
| Start price/share: | $36.69 | ||||
| End price/share: | $59.77 | ||||
| Starting shares: | 272.57 | ||||
| Ending shares: | 513.03 | ||||
| Dividends reinvested/share: | $16.67 | ||||
| Total return: | 206.64% | ||||
| Average annual return: | 5.76% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $30,664.00 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 5.76%. This would have turned a $10K investment made 20 years ago into $30,664.00 today (as of 08/14/2019). On a total return basis, that’s a result of 206.64% (something to think about: how might CMS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CMS Energy Corp paid investors a total of $16.67/share in dividends over the 20 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 1.53/share, we calculate that CMS has a current yield of approximately 2.56%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.53 against the original $36.69/share purchase price. This works out to a yield on cost of 6.98%.
One more investment quote to leave you with:
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” — Warren Buffett
