Photo credit: commons.wikimedia.org

“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— Warren Buffett

One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a five year holding period for an investor who was considering Quanta Services, Inc. (NYSE: PWR) back in 2017, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 12/28/2017
$10,000

12/28/2017
  $37,143

12/27/2022
End date: 12/27/2022
Start price/share: $39.33
End price/share: $143.97
Starting shares: 254.26
Ending shares: 257.96
Dividends reinvested/share: $0.88
Total return: 271.39%
Average annual return: 30.01%
Starting investment: $10,000.00
Ending investment: $37,143.58

As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 30.01%. This would have turned a $10K investment made 5 years ago into $37,143.58 today (as of 12/27/2022). On a total return basis, that’s a result of 271.39% (something to think about: how might PWR shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Quanta Services, Inc. paid investors a total of $0.88/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 .32/share, we calculate that PWR has a current yield of approximately 0.22%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .32 against the original $39.33/share purchase price. This works out to a yield on cost of 0.56%.

One more piece of investment wisdom to leave you with:
“I’d like to live as a poor man with lots of money.” — Pablo Picasso