“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering Xcel Energy Inc (NASD: XEL) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 03/19/2004 |
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| End date: | 03/18/2024 | ||||
| Start price/share: | $18.24 | ||||
| End price/share: | $52.04 | ||||
| Starting shares: | 548.25 | ||||
| Ending shares: | 1,178.23 | ||||
| Dividends reinvested/share: | $26.15 | ||||
| Total return: | 513.15% | ||||
| Average annual return: | 9.49% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $61,349.74 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 9.49%. This would have turned a $10K investment made 20 years ago into $61,349.74 today (as of 03/18/2024). On a total return basis, that’s a result of 513.15% (something to think about: how might XEL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Xcel Energy Inc paid investors a total of $26.15/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 2.19/share, we calculate that XEL has a current yield of approximately 4.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.19 against the original $18.24/share purchase price. This works out to a yield on cost of 23.08%.
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
