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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 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
$10,000

09/18/2014
$19,052

09/17/2019
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