“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a two-decade period?
Today, let’s look backwards in time to 2000, and take a look at what happened to investors who asked that very question about Duke Energy Corp (NYSE: DUK), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 06/26/2000 |
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| End date: | 06/25/2020 | ||||
| Start price/share: | $51.54 | ||||
| End price/share: | $79.45 | ||||
| Starting shares: | 194.02 | ||||
| Ending shares: | 498.75 | ||||
| Dividends reinvested/share: | $56.56 | ||||
| Total return: | 296.25% | ||||
| Average annual return: | 7.12% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $39,603.96 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 7.12%. This would have turned a $10K investment made 20 years ago into $39,603.96 today (as of 06/25/2020). On a total return basis, that’s a result of 296.25% (something to think about: how might DUK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Duke Energy Corp paid investors a total of $56.56/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 3.78/share, we calculate that DUK has a current yield of approximately 4.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.78 against the original $51.54/share purchase price. This works out to a yield on cost of 9.24%.
Here’s one more great investment quote before you go:
“Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world.” — Charlie Munger
