“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a decade-long period?
Today, let’s look backwards in time to 2012, and take a look at what happened to investors who asked that very question about Entergy Corp (NYSE: ETR), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 12/19/2012 |
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| End date: | 12/16/2022 | ||||
| Start price/share: | $64.26 | ||||
| End price/share: | $114.45 | ||||
| Starting shares: | 155.62 | ||||
| Ending shares: | 237.43 | ||||
| Dividends reinvested/share: | $35.84 | ||||
| Total return: | 171.73% | ||||
| Average annual return: | 10.52% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,182.52 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 10.52%. This would have turned a $10K investment made 10 years ago into $27,182.52 today (as of 12/16/2022). On a total return basis, that’s a result of 171.73% (something to think about: how might ETR shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Entergy Corp paid investors a total of $35.84/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 4.28/share, we calculate that ETR has a current yield of approximately 3.74%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.28 against the original $64.26/share purchase price. This works out to a yield on cost of 5.82%.
One more investment quote to leave you with:
“Most investors want to do today what they should have done yesterday.” — Larry Summers
