“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Ameren Corp (NYSE: AEE) back in 1999: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 04/19/1999 |
|
|||
| End date: | 04/17/2019 | ||||
| Start price/share: | $37.38 | ||||
| End price/share: | $70.61 | ||||
| Starting shares: | 267.56 | ||||
| Ending shares: | 741.11 | ||||
| Dividends reinvested/share: | $41.68 | ||||
| Total return: | 423.29% | ||||
| Average annual return: | 8.62% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $52,298.73 | ||||
The above analysis shows the twenty year investment result worked out well, with an annualized rate of return of 8.62%. This would have turned a $10K investment made 20 years ago into $52,298.73 today (as of 04/17/2019). On a total return basis, that’s a result of 423.29% (something to think about: how might AEE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ameren Corp paid investors a total of $41.68/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 1.9/share, we calculate that AEE has a current yield of approximately 2.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.9 against the original $37.38/share purchase price. This works out to a yield on cost of 7.20%.
Another great investment quote to think about:
“The person who starts simply with the idea of getting rich won’t succeed; you must have a larger ambition.” — John Rockefeller
