“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 1999.
| Start date: | 12/20/1999 |
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| End date: | 12/19/2019 | ||||
| Start price/share: | $1,366.40 | ||||
| End price/share: | $51.93 | ||||
| Starting shares: | 7.32 | ||||
| Ending shares: | 10.58 | ||||
| Dividends reinvested/share: | $84.94 | ||||
| Total return: | -94.50% | ||||
| Average annual return: | -13.50% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $549.08 | ||||
As shown above, the twenty year investment result worked out poorly, with an annualized rate of return of -13.50%. This would have turned a $10K investment made 20 years ago into $549.08 today (as of 12/19/2019). On a total return basis, that’s a result of -94.50% (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 $84.94/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 2.46%. 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 $1366.40/share purchase price. This works out to a yield on cost of 0.18%.
One more piece of investment wisdom to leave you with:
“Don’t look for the needle in the haystack, just buy the haystack.” — John Bogle
