“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 CMS Energy Corp (NYSE: CMS) back in 2004: 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: | 05/24/2004 |
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| End date: | 05/22/2024 | ||||
| Start price/share: | $8.04 | ||||
| End price/share: | $61.84 | ||||
| Starting shares: | 1,243.78 | ||||
| Ending shares: | 2,177.21 | ||||
| Dividends reinvested/share: | $20.51 | ||||
| Total return: | 1,246.39% | ||||
| Average annual return: | 13.88% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $134,714.12 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 13.88%. This would have turned a $10K investment made 20 years ago into $134,714.12 today (as of 05/22/2024). On a total return basis, that’s a result of 1,246.39% (something to think about: how might CMS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CMS Energy Corp paid investors a total of $20.51/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 2.06/share, we calculate that CMS has a current yield of approximately 3.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.06 against the original $8.04/share purchase price. This works out to a yield on cost of 41.42%.
Another great investment quote to think about:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
