“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Aon plc (NYSE: AON)? Today, we examine the outcome of a decade-long investment into the stock back in 2012.
| Start date: | 05/10/2012 |
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| End date: | 05/09/2022 | ||||
| Start price/share: | $48.16 | ||||
| End price/share: | $275.09 | ||||
| Starting shares: | 207.64 | ||||
| Ending shares: | 231.08 | ||||
| Dividends reinvested/share: | $14.29 | ||||
| Total return: | 535.68% | ||||
| Average annual return: | 20.31% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $63,567.81 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 20.31%. This would have turned a $10K investment made 10 years ago into $63,567.81 today (as of 05/09/2022). On a total return basis, that’s a result of 535.68% (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 $14.29/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 2.24/share, we calculate that AON has a current yield of approximately 0.81%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.24 against the original $48.16/share purchase price. This works out to a yield on cost of 1.68%.
One more piece of investment wisdom to leave you with:
“Value investing means really asking what are the best values, and not assuming that because something looks expensive that it is, or assuming that because a stock is down in price and trades at low multiples that it is a bargain.” — Bill Miller
