If you were looking for a wonderful company to invest in back in 2009 after the crash, you might have come across Disney. It was then trading at a price which gave investors a dividend yield of not more than about 1%. Keeping in mind that the current dividend yield and the future earning power of a business are not the same, you went ahead and bought a share of ownership in the company.
Let’s say you shared the Warren Buffett idea of having your holding period to be forever and did not sell a share. You’d be happy to see dividends continue increasing for the next ten years. Today your dividend yield would be about five times higher, from about 1 to 5 percent.
What the dividends do not tell is that Disney has retained most of its earnings and compounded them over your holding period. The earning power of each share has also gone up by about fivefold. Your earnings yield on your investment price, not adjusting for dividends, is now more than 28%. It was only about 5% when you bought the shares, but since you bought into a wonderful company at a fair price you did well!