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“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 two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Cisco Systems Inc (NASD: CSCO)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.

Start date: 04/26/1999
$10,000

04/26/1999
$24,401

04/23/2019
End date: 04/23/2019
Start price/share: $29.41
End price/share: $56.69
Starting shares: 340.02
Ending shares: 430.07
Dividends reinvested/share: $6.83
Total return: 143.81%
Average annual return: 4.56%
Starting investment: $10,000.00
Ending investment: $24,401.56

As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 4.56%. This would have turned a $10K investment made 20 years ago into $24,401.56 today (as of 04/23/2019). On a total return basis, that’s a result of 143.81% (something to think about: how might CSCO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Cisco Systems Inc paid investors a total of $6.83/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 CSCO has a current yield of approximately 2.47%. 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 $29.41/share purchase price. This works out to a yield on cost of 8.40%.

Another great investment quote to think about:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer