“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade 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 two-decade investment into the stock back in 1999.
| Start date: | 10/04/1999 |
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| End date: | 10/02/2019 | ||||
| Start price/share: | $28.69 | ||||
| End price/share: | $27.84 | ||||
| Starting shares: | 348.55 | ||||
| Ending shares: | 586.09 | ||||
| Dividends reinvested/share: | $17.62 | ||||
| Total return: | 63.17% | ||||
| Average annual return: | 2.48% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,325.62 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 2.48%. This would have turned a $10K investment made 20 years ago into $16,325.62 today (as of 10/02/2019). On a total return basis, that’s a result of 63.17% (something to think about: how might BAC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Bank of America Corp paid investors a total of $17.62/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 .72/share, we calculate that BAC has a current yield of approximately 2.59%. 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 $28.69/share purchase price. This works out to a yield on cost of 9.03%.
One more investment quote to leave you with:
“The stock market is filled with individuals who know the price of everything, but the value of nothing.” — Phillip Fisher
