“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a decade-long 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 decade-long investment into the stock back in 2014.
| Start date: | 06/13/2014 |
|
|||
| End date: | 06/12/2024 | ||||
| Start price/share: | $40.38 | ||||
| End price/share: | $11.50 | ||||
| Starting shares: | 247.65 | ||||
| Ending shares: | 262.73 | ||||
| Dividends reinvested/share: | $2.30 | ||||
| Total return: | -69.79% | ||||
| Average annual return: | -11.27% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $3,022.88 | ||||
As shown above, the decade-long investment result worked out poorly, with an annualized rate of return of -11.27%. This would have turned a $10K investment made 10 years ago into $3,022.88 today (as of 06/12/2024). On a total return basis, that’s a result of -69.79% (something to think about: how might AAL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American Airlines Group Inc paid investors a total of $2.30/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 .4/share, we calculate that AAL has a current yield of approximately 3.48%. 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 $40.38/share purchase price. This works out to a yield on cost of 8.62%.
More investment wisdom to ponder:
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert Allen
