“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
A five-year holding period is often used to test whether a stock has rewarded patient ownership through a combination of price appreciation, dividends, and the compounding effect of reinvestment. For Smith (A O) Corp (NYSE: AOS), that buy-and-hold test produced a negative result over the period beginning in mid-2021 and ending in mid-2026, even after accounting for reinvested dividends.
The key takeaway is straightforward: AOS generated dividend income during the period, but that income was not enough to offset the decline in the share price. The result was a modest negative total return, illustrating an important point for long-term investors: dividend-paying stocks can still produce disappointing outcomes when valuation compression or weaker price performance outweighs the cash distributions received along the way.
AOS 5-Year Return Details
| Start date: | 06/15/2021 |
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| End date: | 06/12/2026 | ||||
| Start price/share: | $69.26 | ||||
| End price/share: | $59.08 | ||||
| Starting shares: | 144.38 | ||||
| Ending shares: | 158.18 | ||||
| Dividends reinvested/share: | $6.30 | ||||
| Total return: | -6.55% | ||||
| Average annual return: | -1.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,343.68 | ||||
What the 5-Year AOS Return Shows
An initial $10,000 investment in AOS on 06/15/2021 would have been worth $9,343.68 on 06/12/2026, assuming dividends were reinvested. That equates to a total return of -6.55% and an average annual return of -1.35%.
The mechanics of that result matter. Over the five-year period, the share price fell from $69.26 to $59.08, a decline that outweighed the cash income generated by the stock. Reinvested dividends increased the share count from 144.38 to 158.18, which partially cushioned the loss, but not enough to produce a positive total return.
Put differently, dividend reinvestment improved the outcome relative to a price-only holding, but it did not change the direction of the result. That distinction is central in total return analysis: income can soften volatility and add compounding, yet it cannot fully offset a sufficiently weak share-price trend.
[These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
How Reinvested Dividends Affected AOS Performance
Smith (A O) Corp paid a cumulative $6.30 per share in dividends over the period used in this analysis. When those dividends are reinvested, they purchase additional shares, which then become eligible for future dividends as well. That is why the ending share count rose to 158.18 from an initial 144.38 shares.
This is the core advantage of a dividend reinvestment strategy:
- Cash distributions are converted into additional shares automatically.
- The share base grows over time without requiring new capital.
- Future dividend payments are earned on a larger number of shares.
- Total return becomes less dependent on price appreciation alone.
In AOS’s case, however, the benefit of reinvestment was constrained by the stock’s lower ending share price. That is a useful reminder that dividend compounding is most effective when paired with at least stable, and ideally rising, underlying equity value.
Current Yield and Yield on Cost
Based on the most recent annualized dividend rate of $1.44 per share, AOS has a current yield of approximately 2.44% using the ending share price of $59.08. Using that same annualized dividend against the original purchase price of $69.26 produces a yield on cost of 3.52%.
These two measures answer different questions:
- Current yield shows what the stock is yielding at today’s market price.
- Yield on cost shows the income yield relative to the original entry price.
Yield on cost can be useful for tracking how an income stream evolves over time, but it should not be confused with current expected return. For capital allocation decisions made today, current valuation, business fundamentals, and prospective cash generation remain more relevant than the historical purchase price.
Why a Long Holding Period Still Produced a Negative Return
A five-year period is long enough for many businesses to demonstrate the advantages of earnings growth, capital discipline, and dividend compounding. When returns remain negative across that span, it usually points to one or more of the following forces:
- the stock was purchased at a relatively demanding valuation,
- operating performance did not translate into sustained share-price gains,
- the market assigned a lower valuation multiple by the end of the holding period, or
- dividend income was simply too small to overcome capital losses.
The AOS result presented here does not, by itself, identify which of those factors mattered most. What it does show clearly is that time alone does not guarantee a satisfactory outcome. Even for established dividend payers, entry price and subsequent market repricing can materially shape long-term returns.
