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“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 NRG Energy Inc (NYSE: NRG)? Today, we examine the outcome of a five year investment into the stock back in 2014.

Start date: 08/12/2014


End date: 08/09/2019
Start price/share: $29.20
End price/share: $34.15
Starting shares: 342.47
Ending shares: 366.36
Dividends reinvested/share: $1.29
Total return: 25.11%
Average annual return: 4.59%
Starting investment: $10,000.00
Ending investment: $12,512.50

As shown above, the five year investment result worked out as follows, with an annualized rate of return of 4.59%. This would have turned a $10K investment made 5 years ago into $12,512.50 today (as of 08/09/2019). On a total return basis, that’s a result of 25.11% (something to think about: how might NRG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that NRG Energy Inc paid investors a total of $1.29/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 .12/share, we calculate that NRG has a current yield of approximately 0.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .12 against the original $29.20/share purchase price. This works out to a yield on cost of 1.20%.

Another great investment quote to think about:
“Be fearful when others are greedy; be greedy when others are fearful.” — Warren Buffett