“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 International Group Inc (NYSE: AIG)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 05/10/2016 |
|
|||
| End date: | 05/07/2021 | ||||
| Start price/share: | $56.35 | ||||
| End price/share: | $51.19 | ||||
| Starting shares: | 177.46 | ||||
| Ending shares: | 203.08 | ||||
| Dividends reinvested/share: | $6.40 | ||||
| Total return: | 3.95% | ||||
| Average annual return: | 0.78% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,395.69 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 0.78%. This would have turned a $10K investment made 5 years ago into $10,395.69 today (as of 05/07/2021). On a total return basis, that’s a result of 3.95% (something to think about: how might AIG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American International Group Inc paid investors a total of $6.40/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 1.28/share, we calculate that AIG has a current yield of approximately 2.50%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.28 against the original $56.35/share purchase price. This works out to a yield on cost of 4.44%.
More investment wisdom to ponder:
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” — Peter Lynch
