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“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

— 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 two-decade period?

Today, let’s look backwards in time to 2004, and take a look at what happened to investors who asked that very question about American Electric Power Co Inc (NASD: AEP), by taking a look at the investment outcome over a two-decade holding period.

Start date: 06/01/2004


End date: 05/29/2024
Start price/share: $31.40
End price/share: $87.47
Starting shares: 318.47
Ending shares: 706.48
Dividends reinvested/share: $44.09
Total return: 517.96%
Average annual return: 9.53%
Starting investment: $10,000.00
Ending investment: $61,784.33

As we can see, the two-decade investment result worked out well, with an annualized rate of return of 9.53%. This would have turned a $10K investment made 20 years ago into $61,784.33 today (as of 05/29/2024). On a total return basis, that’s a result of 517.96% (something to think about: how might AEP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Dividends are always an important investment factor to consider, and American Electric Power Co Inc has paid $44.09/share in dividends to shareholders over the past 20 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).

Based upon the most recent annualized dividend rate of 3.52/share, we calculate that AEP has a current yield of approximately 4.02%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.52 against the original $31.40/share purchase price. This works out to a yield on cost of 12.80%.

More investment wisdom to ponder:
“As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.” — Benjamin Graham