“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 twenty year 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 Aon plc (NYSE: AON), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 07/12/2004 |
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| End date: | 07/10/2024 | ||||
| Start price/share: | $27.68 | ||||
| End price/share: | $295.41 | ||||
| Starting shares: | 361.27 | ||||
| Ending shares: | 465.61 | ||||
| Dividends reinvested/share: | $23.92 | ||||
| Total return: | 1,275.45% | ||||
| Average annual return: | 14.00% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $137,582.99 | ||||
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 14.00%. This would have turned a $10K investment made 20 years ago into $137,582.99 today (as of 07/10/2024). On a total return basis, that’s a result of 1,275.45% (something to think about: how might AON shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Aon plc paid investors a total of $23.92/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 2.7/share, we calculate that AON has a current yield of approximately 0.91%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.7 against the original $27.68/share purchase price. This works out to a yield on cost of 3.29%.
One more investment quote to leave you with:
“When you sell in desperation, you always sell cheap.” — Peter Lynch
