“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a decade-long period?
Today, let’s look backwards in time to 2013, and take a look at what happened to investors who asked that very question about American International Group Inc (NYSE: AIG), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 01/22/2013 |
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| End date: | 01/19/2023 | ||||
| Start price/share: | $35.91 | ||||
| End price/share: | $61.72 | ||||
| Starting shares: | 278.47 | ||||
| Ending shares: | 342.99 | ||||
| Dividends reinvested/share: | $10.47 | ||||
| Total return: | 111.70% | ||||
| Average annual return: | 7.79% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,168.76 | ||||
The above analysis shows the decade-long investment result worked out well, with an annualized rate of return of 7.79%. This would have turned a $10K investment made 10 years ago into $21,168.76 today (as of 01/19/2023). On a total return basis, that’s a result of 111.70% (something to think about: how might AIG shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American International Group Inc paid investors a total of $10.47/share in dividends over the 10 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 2.07%. 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 $35.91/share purchase price. This works out to a yield on cost of 5.76%.
More investment wisdom to ponder:
“The function of economic forecasting is to make astrology look respectable.” — John Galbraith
