“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five 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 five year investment into the stock back in 2016.
|Average annual return:||-6.45%|
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -6.45%. This would have turned a $10K investment made 5 years ago into $7,165.05 today (as of 05/11/2021). On a total return basis, that’s a result of -28.36% (something to think about: how might AAL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American Airlines Group Inc paid investors a total of $1.50/share in dividends over the 5 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 1.85%. 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 $31.33/share purchase price. This works out to a yield on cost of 5.90%.
One more piece of investment wisdom to leave you with:
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” — Charlie Munger