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“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
$10,000

06/13/2014
  $3,022

06/12/2024
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