“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 decade-long period?
Today, let’s look backwards in time to 2009, and take a look at what happened to investors who asked that very question about Aon plc (NYSE: AON), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 12/17/2009 |
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| End date: | 12/16/2019 | ||||
| Start price/share: | $37.89 | ||||
| End price/share: | $207.01 | ||||
| Starting shares: | 263.92 | ||||
| Ending shares: | 297.45 | ||||
| Dividends reinvested/share: | $10.96 | ||||
| Total return: | 515.76% | ||||
| Average annual return: | 19.93% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $61,587.78 | ||||
As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 19.93%. This would have turned a $10K investment made 10 years ago into $61,587.78 today (as of 12/16/2019). On a total return basis, that’s a result of 515.76% (something to think about: how might AON shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Aon plc paid investors a total of $10.96/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 1.76/share, we calculate that AON has a current yield of approximately 0.85%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.76 against the original $37.89/share purchase price. This works out to a yield on cost of 2.24%.
One more investment quote to leave you with:
“In the end, how your investments behave is much less important than how you behave.” — Benjamin Graham
