“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 FirstEnergy Corp (NYSE: FE)? Today, we examine the outcome of a ten year investment into the stock back in 2010.
| Start date: | 11/17/2010 |
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| End date: | 11/16/2020 | ||||
| Start price/share: | $35.70 | ||||
| End price/share: | $28.50 | ||||
| Starting shares: | 280.11 | ||||
| Ending shares: | 445.45 | ||||
| Dividends reinvested/share: | $17.43 | ||||
| Total return: | 26.95% | ||||
| Average annual return: | 2.41% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,690.55 | ||||
As we can see, the ten year investment result worked out as follows, with an annualized rate of return of 2.41%. This would have turned a $10K investment made 10 years ago into $12,690.55 today (as of 11/16/2020). On a total return basis, that’s a result of 26.95% (something to think about: how might FE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that FirstEnergy Corp paid investors a total of $17.43/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 1.56/share, we calculate that FE has a current yield of approximately 5.47%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.56 against the original $35.70/share purchase price. This works out to a yield on cost of 15.32%.
More investment wisdom to ponder:
“Cash combined with courage in a time of crisis is priceless.” — Warren Buffett
