“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 twenty year period?
Today, let’s look backwards in time to 2001, 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 twenty year holding period.
| Start date: | 12/06/2001 |
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| End date: | 12/03/2021 | ||||
| Start price/share: | $14.63 | ||||
| End price/share: | $116.76 | ||||
| Starting shares: | 683.53 | ||||
| Ending shares: | 875.20 | ||||
| Dividends reinvested/share: | $15.33 | ||||
| Total return: | 921.88% | ||||
| Average annual return: | 12.32% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $102,192.35 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 12.32%. This would have turned a $10K investment made 20 years ago into $102,192.35 today (as of 12/03/2021). On a total return basis, that’s a result of 921.88% (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 $15.33/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 1.84/share, we calculate that ABC has a current yield of approximately 1.58%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.84 against the original $14.63/share purchase price. This works out to a yield on cost of 10.80%.
One more piece of investment wisdom to leave you with:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham
