“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 twenty year period?
Today, let’s look backwards in time to 2003, and take a look at what happened to investors who asked that very question about DTE Energy Co (NYSE: DTE), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 07/14/2003 |
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| End date: | 07/12/2023 | ||||
| Start price/share: | $31.83 | ||||
| End price/share: | $112.81 | ||||
| Starting shares: | 314.17 | ||||
| Ending shares: | 712.56 | ||||
| Dividends reinvested/share: | $48.73 | ||||
| Total return: | 703.84% | ||||
| Average annual return: | 10.98% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $80,401.89 | ||||
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 10.98%. This would have turned a $10K investment made 20 years ago into $80,401.89 today (as of 07/12/2023). On a total return basis, that’s a result of 703.84% (something to think about: how might DTE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that DTE Energy Co paid investors a total of $48.73/share in dividends over the 20 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 3.81/share, we calculate that DTE has a current yield of approximately 3.38%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.81 against the original $31.83/share purchase price. This works out to a yield on cost of 10.62%.
One more piece of investment wisdom to leave you with:
“Investing is the intersection of economics and psychology.” — Seth Klarman
