“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into PG&E Corp (NYSE: PCG)? Today, we examine the outcome of a ten year investment into the stock back in 2014.
| Start date: | 02/14/2014 |
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| End date: | 02/13/2024 | ||||
| Start price/share: | $43.94 | ||||
| End price/share: | $16.29 | ||||
| Starting shares: | 227.58 | ||||
| Ending shares: | 258.77 | ||||
| Dividends reinvested/share: | $7.13 | ||||
| Total return: | -57.85% | ||||
| Average annual return: | -8.27% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $4,217.07 | ||||
As shown above, the ten year investment result worked out poorly, with an annualized rate of return of -8.27%. This would have turned a $10K investment made 10 years ago into $4,217.07 today (as of 02/13/2024). On a total return basis, that’s a result of -57.85% (something to think about: how might PCG shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PG&E Corp paid investors a total of $7.13/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 .04/share, we calculate that PCG has a current yield of approximately 0.25%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .04 against the original $43.94/share purchase price. This works out to a yield on cost of 0.57%.
One more piece of investment wisdom to leave you with:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett
