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“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year period?

Today, let’s look backwards in time to 2014, and take a look at what happened to investors who asked that very question about AmerisourceBergen Corp. (NYSE: ABC), by taking a look at the investment outcome over a five year holding period.

Start date: 07/16/2014
$10,000

07/16/2014
$13,338

07/15/2019
End date: 07/15/2019
Start price/share: $72.97
End price/share: $89.93
Starting shares: 137.04
Ending shares: 148.35
Dividends reinvested/share: $6.94
Total return: 33.41%
Average annual return: 5.93%
Starting investment: $10,000.00
Ending investment: $13,338.13

As we can see, the five year investment result worked out well, with an annualized rate of return of 5.93%. This would have turned a $10K investment made 5 years ago into $13,338.13 today (as of 07/15/2019). On a total return basis, that’s a result of 33.41% (something to think about: how might ABC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that AmerisourceBergen Corp. paid investors a total of $6.94/share in dividends over the 5 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 1.6/share, we calculate that ABC has a current yield of approximately 1.78%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $72.97/share purchase price. This works out to a yield on cost of 2.44%.

One more piece of investment wisdom to leave you with:
“The greater the passive income you can build, the freer you will become.” — Todd Fleming

ABC