“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 twenty 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 twenty year investment into the stock back in 2002.
| Start date: | 11/11/2002 |
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| End date: | 11/10/2022 | ||||
| Start price/share: | $1,276.20 | ||||
| End price/share: | $60.59 | ||||
| Starting shares: | 7.84 | ||||
| Ending shares: | 12.23 | ||||
| Dividends reinvested/share: | $80.69 | ||||
| Total return: | -92.59% | ||||
| Average annual return: | -12.19% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $741.76 | ||||
As shown above, the twenty year investment result worked out poorly, with an annualized rate of return of -12.19%. This would have turned a $10K investment made 20 years ago into $741.76 today (as of 11/10/2022). On a total return basis, that’s a result of -92.59% (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 $80.69/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 2.11%. 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 $1276.20/share purchase price. This works out to a yield on cost of 0.17%.
Another great investment quote to think about:
“The investor’s chief problem, even his worst enemy, is likely to be himself.” — Benjamin Graham
