“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 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 2003.
| Start date: | 07/31/2003 |
|
|||
| End date: | 07/28/2023 | ||||
| Start price/share: | $41.29 | ||||
| End price/share: | $31.90 | ||||
| Starting shares: | 242.19 | ||||
| Ending shares: | 385.08 | ||||
| Dividends reinvested/share: | $16.32 | ||||
| Total return: | 22.84% | ||||
| Average annual return: | 1.03% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,275.28 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 1.03%. This would have turned a $10K investment made 20 years ago into $12,275.28 today (as of 07/28/2023). On a total return basis, that’s a result of 22.84% (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 $16.32/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 .96/share, we calculate that BAC has a current yield of approximately 3.01%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .96 against the original $41.29/share purchase price. This works out to a yield on cost of 7.29%.
One more investment quote to leave you with:
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” — Albert Einstein
