“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— 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 five year period?
Today, let’s look backwards in time to 2019, and take a look at what happened to investors who asked that very question about Kinder Morgan Inc. (NYSE: KMI), by taking a look at the investment outcome over a five year holding period.
| Start date: | 06/17/2019 |
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| End date: | 06/14/2024 | ||||
| Start price/share: | $20.52 | ||||
| End price/share: | $19.59 | ||||
| Starting shares: | 487.33 | ||||
| Ending shares: | 670.00 | ||||
| Dividends reinvested/share: | $5.41 | ||||
| Total return: | 31.25% | ||||
| Average annual return: | 5.59% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,123.49 | ||||
As we can see, the five year investment result worked out well, with an annualized rate of return of 5.59%. This would have turned a $10K investment made 5 years ago into $13,123.49 today (as of 06/14/2024). On a total return basis, that’s a result of 31.25% (something to think about: how might KMI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Kinder Morgan Inc. paid investors a total of $5.41/share in dividends over the 5 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 1.15/share, we calculate that KMI has a current yield of approximately 5.87%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.15 against the original $20.52/share purchase price. This works out to a yield on cost of 28.61%.
One more piece of investment wisdom to leave you with:
“Every day that you’re not selling an asset in your portfolio, you’re choosing to buy it.” — Sam Zell
