“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 Consolidated Edison Inc (NYSE: ED)? Today, we examine the outcome of a five year investment into the stock back in 2017.
| Start date: | 10/09/2017 |
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| End date: | 10/06/2022 | ||||
| Start price/share: | $81.49 | ||||
| End price/share: | $84.00 | ||||
| Starting shares: | 122.71 | ||||
| Ending shares: | 147.64 | ||||
| Dividends reinvested/share: | $15.04 | ||||
| Total return: | 24.02% | ||||
| Average annual return: | 4.40% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,399.38 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 4.40%. This would have turned a $10K investment made 5 years ago into $12,399.38 today (as of 10/06/2022). On a total return basis, that’s a result of 24.02% (something to think about: how might ED shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Consolidated Edison Inc paid investors a total of $15.04/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 3.16/share, we calculate that ED has a current yield of approximately 3.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.16 against the original $81.49/share purchase price. This works out to a yield on cost of 4.61%.
Here’s one more great investment quote before you go:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
