“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 ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into American Airlines Group Inc (NASD: AAL)? Today, we examine the outcome of a ten year investment into the stock back in 2010.
| Start date: | 08/31/2010 |
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| End date: | 08/28/2020 | ||||
| Start price/share: | $9.04 | ||||
| End price/share: | $13.59 | ||||
| Starting shares: | 1,106.19 | ||||
| Ending shares: | 1,173.57 | ||||
| Dividends reinvested/share: | $2.30 | ||||
| Total return: | 59.49% | ||||
| Average annual return: | 4.78% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $15,950.85 | ||||
The above analysis shows the ten year investment result worked out as follows, with an annualized rate of return of 4.78%. This would have turned a $10K investment made 10 years ago into $15,950.85 today (as of 08/28/2020). On a total return basis, that’s a result of 59.49% (something to think about: how might AAL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American Airlines Group Inc paid investors a total of $2.30/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 .4/share, we calculate that AAL has a current yield of approximately 2.94%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .4 against the original $9.04/share purchase price. This works out to a yield on cost of 32.52%.
One more investment quote to leave you with:
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.” — Peter Lynch
