“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 NRG Energy Inc (NYSE: NRG)? Today, we examine the outcome of a five year investment into the stock back in 2018.
| Start date: | 06/18/2018 |
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| End date: | 06/15/2023 | ||||
| Start price/share: | $32.98 | ||||
| End price/share: | $34.37 | ||||
| Starting shares: | 303.21 | ||||
| Ending shares: | 345.47 | ||||
| Dividends reinvested/share: | $4.84 | ||||
| Total return: | 18.74% | ||||
| Average annual return: | 3.50% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,874.62 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 3.50%. This would have turned a $10K investment made 5 years ago into $11,874.62 today (as of 06/15/2023). On a total return basis, that’s a result of 18.74% (something to think about: how might NRG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that NRG Energy Inc paid investors a total of $4.84/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 1.51/share, we calculate that NRG has a current yield of approximately 4.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.51 against the original $32.98/share purchase price. This works out to a yield on cost of 13.31%.
One more investment quote to leave you with:
“The person who starts simply with the idea of getting rich won’t succeed; you must have a larger ambition.” — John Rockefeller
