“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Dominion Energy Inc (NYSE: D) back in 2003: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 10/13/2003 |
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| End date: | 10/10/2023 | ||||
| Start price/share: | $31.27 | ||||
| End price/share: | $42.59 | ||||
| Starting shares: | 319.80 | ||||
| Ending shares: | 712.50 | ||||
| Dividends reinvested/share: | $45.59 | ||||
| Total return: | 203.45% | ||||
| Average annual return: | 5.71% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $30,370.62 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 5.71%. This would have turned a $10K investment made 20 years ago into $30,370.62 today (as of 10/10/2023). On a total return basis, that’s a result of 203.45% (something to think about: how might D shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Dominion Energy Inc paid investors a total of $45.59/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 2.67/share, we calculate that D has a current yield of approximately 6.27%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.67 against the original $31.27/share purchase price. This works out to a yield on cost of 20.05%.
Here’s one more great investment quote before you go:
“The four most dangerous words in investing are: ‘this time it’s different.'” — Sir John Templeton
