“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 Xcel Energy Inc (NASD: XEL)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 02/09/2015 |
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| End date: | 02/06/2020 | ||||
| Start price/share: | $35.34 | ||||
| End price/share: | $69.30 | ||||
| Starting shares: | 282.97 | ||||
| Ending shares: | 332.51 | ||||
| Dividends reinvested/share: | $7.22 | ||||
| Total return: | 130.43% | ||||
| Average annual return: | 18.19% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,041.25 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 18.19%. This would have turned a $10K investment made 5 years ago into $23,041.25 today (as of 02/06/2020). On a total return basis, that’s a result of 130.43% (something to think about: how might XEL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Xcel Energy Inc 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 1.62/share, we calculate that XEL has a current yield of approximately 2.34%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.62 against the original $35.34/share purchase price. This works out to a yield on cost of 6.62%.
More investment wisdom to ponder:
“The function of economic forecasting is to make astrology look respectable.” — John Galbraith
