“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Such a great quote from Warren Buffett, highlighting the importance of investment time horizon when considering making an investment. In the short run, who knows what the stock market will do? A week or two after buying any given stock, could the entire stock market fall out of bed? Quite possibly! Should that happen, how would you react? It is an excellent question to think about before hitting the buy button.
For investors who take a multi-year time horizon, the important thing is not what happens in the next week or two, but what the result will be over the long haul. Today, we look at the result investors of the year 2003 experienced, who considered an investment in shares of AES Corp (NYSE: AES) and decided upon a twenty year investment time horizon.
|Average annual return:||11.51%|
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 11.51%. This would have turned a $10K investment made 20 years ago into $88,416.96 today (as of 03/29/2023). On a total return basis, that’s a result of 783.89% (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.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of AES Corp, investors have received $4.76/share in dividends these past 20 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use closing price on ex-date).
Based upon the most recent annualized dividend rate of .6636/share, we calculate that AES has a current yield of approximately 2.83%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .6636 against the original $3.62/share purchase price. This works out to a yield on cost of 78.18%.
Another great investment quote to think about:
“It’s not always easy to do what’s not popular, but that’s where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized.” — John Neff