“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into AES Corp. (NYSE: AES)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 09/27/1999 |
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| End date: | 09/26/2019 | ||||
| Start price/share: | $31.56 | ||||
| End price/share: | $16.22 | ||||
| Starting shares: | 316.86 | ||||
| Ending shares: | 391.04 | ||||
| Dividends reinvested/share: | $2.65 | ||||
| Total return: | -36.57% | ||||
| Average annual return: | -2.25% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,342.01 | ||||
As shown above, the twenty year investment result worked out poorly, with an annualized rate of return of -2.25%. This would have turned a $10K investment made 20 years ago into $6,342.01 today (as of 09/26/2019). On a total return basis, that’s a result of -36.57% (something to think about: how might AES shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AES Corp. paid investors a total of $2.65/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 .546/share, we calculate that AES has a current yield of approximately 3.37%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .546 against the original $31.56/share purchase price. This works out to a yield on cost of 10.68%.
More investment wisdom to ponder:
“Spend each day trying to be a little wiser than you were when you woke up.” — Charlie Munger
