“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a two-decade holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 20 years to 2000, investors considering an investment into shares of Cognizant Technology Solutions Corp. (NASD: CTSH) may have been pondering this very question and thinking about their potential investment result over a full two-decade time horizon. Here’s how that would have worked out.
| Start date: | 12/18/2000 |
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| End date: | 12/15/2020 | ||||
| Start price/share: | $1.54 | ||||
| End price/share: | $80.53 | ||||
| Starting shares: | 6,493.51 | ||||
| Ending shares: | 6,780.56 | ||||
| Dividends reinvested/share: | $2.93 | ||||
| Total return: | 5,360.38% | ||||
| Average annual return: | 22.13% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $545,660.96 | ||||
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 22.13%. This would have turned a $10K investment made 20 years ago into $545,660.96 today (as of 12/15/2020). On a total return basis, that’s a result of 5,360.38% (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.]
Beyond share price change, another component of CTSH’s total return these past 20 years has been the payment by Cognizant Technology Solutions Corp. of $2.93/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of .88/share, we calculate that CTSH has a current yield of approximately 1.09%. 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 $1.54/share purchase price. This works out to a yield on cost of 70.78%.
Here’s one more great investment quote before you go:
“Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.” — Peter Lynch
