“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 2001.
| Start date: | 11/05/2001 |
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| End date: | 11/02/2021 | ||||
| Start price/share: | $13.78 | ||||
| End price/share: | $25.37 | ||||
| Starting shares: | 725.69 | ||||
| Ending shares: | 956.94 | ||||
| Dividends reinvested/share: | $3.96 | ||||
| Total return: | 142.78% | ||||
| Average annual return: | 4.53% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $24,258.93 | ||||
The above analysis shows the twenty year investment result worked out as follows, with an annualized rate of return of 4.53%. This would have turned a $10K investment made 20 years ago into $24,258.93 today (as of 11/02/2021). On a total return basis, that’s a result of 142.78% (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 $3.96/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 .602/share, we calculate that AES has a current yield of approximately 2.37%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .602 against the original $13.78/share purchase price. This works out to a yield on cost of 17.20%.
One more investment quote to leave you with:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham
