“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 CenterPoint Energy, Inc (NYSE: CNP)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 07/28/2015 |
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| End date: | 07/27/2020 | ||||
| Start price/share: | $18.89 | ||||
| End price/share: | $19.07 | ||||
| Starting shares: | 529.38 | ||||
| Ending shares: | 657.15 | ||||
| Dividends reinvested/share: | $5.30 | ||||
| Total return: | 25.32% | ||||
| Average annual return: | 4.61% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,529.09 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 4.61%. This would have turned a $10K investment made 5 years ago into $12,529.09 today (as of 07/27/2020). On a total return basis, that’s a result of 25.32% (something to think about: how might CNP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CenterPoint Energy, Inc paid investors a total of $5.30/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 .6/share, we calculate that CNP has a current yield of approximately 3.15%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .6 against the original $18.89/share purchase price. This works out to a yield on cost of 16.68%.
More investment wisdom to ponder:
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” — Charlie Munger
