“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.
| Start date: | 07/20/2016 |
|
|||
| End date: | 07/19/2021 | ||||
| Start price/share: | $35.92 | ||||
| End price/share: | $18.97 | ||||
| Starting shares: | 278.40 | ||||
| Ending shares: | 289.68 | ||||
| Dividends reinvested/share: | $1.50 | ||||
| Total return: | -45.05% | ||||
| Average annual return: | -11.28% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,496.77 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -11.28%. This would have turned a $10K investment made 5 years ago into $5,496.77 today (as of 07/19/2021). On a total return basis, that’s a result of -45.05% (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 2.11%. 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 $35.92/share purchase price. This works out to a yield on cost of 5.87%.
More investment wisdom to ponder:
“The function of economic forecasting is to make astrology look respectable.” — John Galbraith
