“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Bank of America Corp (NYSE: BAC)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 09/18/2014 |
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| End date: | 09/17/2019 | ||||
| Start price/share: | $17.04 | ||||
| End price/share: | $29.94 | ||||
| Starting shares: | 586.85 | ||||
| Ending shares: | 636.46 | ||||
| Dividends reinvested/share: | $1.91 | ||||
| Total return: | 90.55% | ||||
| Average annual return: | 13.76% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $19,052.32 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 13.76%. This would have turned a $10K investment made 5 years ago into $19,052.32 today (as of 09/17/2019). On a total return basis, that’s a result of 90.55% (something to think about: how might BAC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Bank of America Corp paid investors a total of $1.91/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 .72/share, we calculate that BAC has a current yield of approximately 2.40%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $17.04/share purchase price. This works out to a yield on cost of 14.08%.
One more piece of investment wisdom to leave you with:
“Investing is the intersection of economics and psychology.” — Seth Klarman
