“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 Bank of America Corp (NYSE: BAC)? Today, we examine the outcome of a twenty year investment into the stock back in 2002.
| Start date: | 02/04/2002 |
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| End date: | 02/02/2022 | ||||
| Start price/share: | $29.70 | ||||
| End price/share: | $46.89 | ||||
| Starting shares: | 336.70 | ||||
| Ending shares: | 543.82 | ||||
| Dividends reinvested/share: | $16.88 | ||||
| Total return: | 155.00% | ||||
| Average annual return: | 4.79% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,501.39 | ||||
As we can see, the twenty year investment result worked out as follows, with an annualized rate of return of 4.79%. This would have turned a $10K investment made 20 years ago into $25,501.39 today (as of 02/02/2022). On a total return basis, that’s a result of 155.00% (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 $16.88/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 .84/share, we calculate that BAC has a current yield of approximately 1.79%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .84 against the original $29.70/share purchase price. This works out to a yield on cost of 6.03%.
One more piece of investment wisdom to leave you with:
“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” — Peter Lynch
