“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— 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 five year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into DTE Energy Co (NYSE: DTE) back in 2019: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.
| Start date: | 11/11/2019 |
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| End date: | 11/08/2024 | ||||
| Start price/share: | $102.73 | ||||
| End price/share: | $117.80 | ||||
| Starting shares: | 97.34 | ||||
| Ending shares: | 115.25 | ||||
| Dividends reinvested/share: | $18.48 | ||||
| Total return: | 35.77% | ||||
| Average annual return: | 6.31% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,576.81 | ||||
As shown above, the five year investment result worked out well, with an annualized rate of return of 6.31%. This would have turned a $10K investment made 5 years ago into $13,576.81 today (as of 11/08/2024). On a total return basis, that’s a result of 35.77% (something to think about: how might DTE shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that DTE Energy Co paid investors a total of $18.48/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 4.08/share, we calculate that DTE has a current yield of approximately 3.46%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.08 against the original $102.73/share purchase price. This works out to a yield on cost of 3.37%.
One more piece of investment wisdom to leave you with:
“The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” — William O’Neil
