“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a five year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Duke Energy Corp (NYSE: DUK) back in 2017: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.
| Start date: | 05/09/2017 |
|
|||
| End date: | 05/06/2022 | ||||
| Start price/share: | $82.11 | ||||
| End price/share: | $111.32 | ||||
| Starting shares: | 121.79 | ||||
| Ending shares: | 150.21 | ||||
| Dividends reinvested/share: | $18.72 | ||||
| Total return: | 67.22% | ||||
| Average annual return: | 10.84% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,720.05 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 10.84%. This would have turned a $10K investment made 5 years ago into $16,720.05 today (as of 05/06/2022). On a total return basis, that’s a result of 67.22% (something to think about: how might DUK shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Duke Energy Corp paid investors a total of $18.72/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 3.94/share, we calculate that DUK has a current yield of approximately 3.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.94 against the original $82.11/share purchase price. This works out to a yield on cost of 4.31%.
More investment wisdom to ponder:
“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make.” — Bill Gross
