“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into FirstEnergy Corp (NYSE: FE)? Today, we examine the outcome of a ten year investment into the stock back in 2012.
| Start date: | 01/09/2012 |
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| End date: | 01/06/2022 | ||||
| Start price/share: | $42.40 | ||||
| End price/share: | $40.94 | ||||
| Starting shares: | 235.85 | ||||
| Ending shares: | 366.57 | ||||
| Dividends reinvested/share: | $16.24 | ||||
| Total return: | 50.07% | ||||
| Average annual return: | 4.14% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $15,002.92 | ||||
As shown above, the ten year investment result worked out as follows, with an annualized rate of return of 4.14%. This would have turned a $10K investment made 10 years ago into $15,002.92 today (as of 01/06/2022). On a total return basis, that’s a result of 50.07% (something to think about: how might FE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that FirstEnergy Corp paid investors a total of $16.24/share in dividends over the 10 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 1.56/share, we calculate that FE has a current yield of approximately 3.81%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.56 against the original $42.40/share purchase price. This works out to a yield on cost of 8.99%.
Another great investment quote to think about:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch
