“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Citrix Systems Inc (NASD: CTXS) back in 1999: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 03/19/1999 |
|
|||
| End date: | 03/18/2019 | ||||
| Start price/share: | $15.48 | ||||
| End price/share: | $101.56 | ||||
| Starting shares: | 645.99 | ||||
| Ending shares: | 650.27 | ||||
| Dividends reinvested/share: | $0.70 | ||||
| Total return: | 560.41% | ||||
| Average annual return: | 9.89% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $65,993.34 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 9.89%. This would have turned a $10K investment made 20 years ago into $65,993.34 today (as of 03/18/2019). On a total return basis, that’s a result of 560.41% (something to think about: how might CTXS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Citrix Systems Inc paid investors a total of $0.70/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 1.4/share, we calculate that CTXS has a current yield of approximately 1.38%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $15.48/share purchase price. This works out to a yield on cost of 8.91%.
More investment wisdom to ponder:
“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.” — Benjamin Graham
