Photo credit: commons.wikimedia.org

“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 decade-long 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 decade-long investment into the stock back in 2010.

Start date: 10/25/2010
$10,000

10/25/2010
$12,047

10/22/2020
End date: 10/22/2020
Start price/share: $11.58
End price/share: $13.15
Starting shares: 863.56
Ending shares: 916.15
Dividends reinvested/share: $2.30
Total return: 20.47%
Average annual return: 1.88%
Starting investment: $10,000.00
Ending investment: $12,047.29

As we can see, the decade-long investment result worked out as follows, with an annualized rate of return of 1.88%. This would have turned a $10K investment made 10 years ago into $12,047.29 today (as of 10/22/2020). On a total return basis, that’s a result of 20.47% (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 3.04%. 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 $11.58/share purchase price. This works out to a yield on cost of 26.25%.

More investment wisdom to ponder:
“Sentimentality about an investments leads to lack of discipline.” — Sam Zell