“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a five year holding period for an investor who was considering American Electric Power Co Inc (NASD: AEP) back in 2016, bought the stock, ignored the market’s ups and downs, and simply held through to today.
|Average annual return:||7.99%|
As shown above, the five year investment result worked out well, with an annualized rate of return of 7.99%. This would have turned a $10K investment made 5 years ago into $14,689.57 today (as of 02/23/2021). On a total return basis, that’s a result of 46.92% (something to think about: how might AEP shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 5 years, American Electric Power Co Inc has paid $12.92/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 2.96/share, we calculate that AEP has a current yield of approximately 3.79%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.96 against the original $63.01/share purchase price. This works out to a yield on cost of 6.01%.
Here’s one more great investment quote before you go:
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” — Benjamin Graham