“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 AmerisourceBergen Corp. (NYSE: ABC)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 10/08/1999 |
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| End date: | 10/07/2019 | ||||
| Start price/share: | $5.24 | ||||
| End price/share: | $81.86 | ||||
| Starting shares: | 1,908.40 | ||||
| Ending shares: | 2,355.13 | ||||
| Dividends reinvested/share: | $11.46 | ||||
| Total return: | 1,827.91% | ||||
| Average annual return: | 15.94% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $192,916.71 | ||||
The above analysis shows the twenty year investment result worked out exceptionally well, with an annualized rate of return of 15.94%. This would have turned a $10K investment made 20 years ago into $192,916.71 today (as of 10/07/2019). On a total return basis, that’s a result of 1,827.91% (something to think about: how might ABC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AmerisourceBergen Corp. paid investors a total of $11.46/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 1.6/share, we calculate that ABC has a current yield of approximately 1.95%. 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 $5.24/share purchase price. This works out to a yield on cost of 37.21%.
Here’s one more great investment quote before you go:
“When you sell in desperation, you always sell cheap.” — Peter Lynch
