“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 two-decade period?
Today, let’s look backwards in time to 2000, and take a look at what happened to investors who asked that very question about Cognizant Technology Solutions Corp. (NASD: CTSH), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 05/30/2000 |
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| End date: | 05/28/2020 | ||||
| Start price/share: | $2.18 | ||||
| End price/share: | $53.70 | ||||
| Starting shares: | 4,587.16 | ||||
| Ending shares: | 4,760.08 | ||||
| Dividends reinvested/share: | $2.49 | ||||
| Total return: | 2,456.16% | ||||
| Average annual return: | 17.58% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $255,415.47 | ||||
As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 17.58%. This would have turned a $10K investment made 20 years ago into $255,415.47 today (as of 05/28/2020). On a total return basis, that’s a result of 2,456.16% (something to think about: how might CTSH shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and Cognizant Technology Solutions Corp. has paid $2.49/share in dividends to shareholders over the past 20 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of .88/share, we calculate that CTSH has a current yield of approximately 1.64%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .88 against the original $2.18/share purchase price. This works out to a yield on cost of 75.23%.
One more investment quote to leave you with:
“As long as you enjoy investing, you’ll be willing to do the homework and stay in the game.” — Jim Cramer
