“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade 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 two-decade investment into the stock back in 2002.
| Start date: | 08/09/2002 |
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| End date: | 08/08/2022 | ||||
| Start price/share: | $1,339.00 | ||||
| End price/share: | $52.27 | ||||
| Starting shares: | 7.47 | ||||
| Ending shares: | 11.60 | ||||
| Dividends reinvested/share: | $81.31 | ||||
| Total return: | -93.94% | ||||
| Average annual return: | -13.07% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $606.35 | ||||
The above analysis shows the two-decade investment result worked out poorly, with an annualized rate of return of -13.07%. This would have turned a $10K investment made 20 years ago into $606.35 today (as of 08/08/2022). On a total return basis, that’s a result of -93.94% (something to think about: how might AIG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American International Group Inc paid investors a total of $81.31/share in dividends over the 20 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 2.45%. 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 $1339.00/share purchase price. This works out to a yield on cost of 0.18%.
More investment wisdom to ponder:
“The greater the passive income you can build, the freer you will become.” — Todd Fleming
