“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 Eversource Energy (NYSE: ES)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 09/15/2014 |
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| End date: | 09/12/2019 | ||||
| Start price/share: | $44.62 | ||||
| End price/share: | $82.86 | ||||
| Starting shares: | 224.11 | ||||
| Ending shares: | 261.32 | ||||
| Dividends reinvested/share: | $8.83 | ||||
| Total return: | 116.53% | ||||
| Average annual return: | 16.73% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,654.31 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 16.73%. This would have turned a $10K investment made 5 years ago into $21,654.31 today (as of 09/12/2019). On a total return basis, that’s a result of 116.53% (something to think about: how might ES shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Eversource Energy paid investors a total of $8.83/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 2.14/share, we calculate that ES has a current yield of approximately 2.58%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.14 against the original $44.62/share purchase price. This works out to a yield on cost of 5.78%.
One more piece of investment wisdom to leave you with:
“A 10% decline in the market is fairly common, it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefitting from the wealthbuilding power of stocks.” — Christopher Davis
