“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering Cerner Corp. (NASD: CERN) back in 2000, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 12/01/2000 |
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| End date: | 11/30/2020 | ||||
| Start price/share: | $6.75 | ||||
| End price/share: | $74.84 | ||||
| Starting shares: | 1,481.48 | ||||
| Ending shares: | 1,504.91 | ||||
| Dividends reinvested/share: | $1.08 | ||||
| Total return: | 1,026.28% | ||||
| Average annual return: | 12.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $112,558.09 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 12.86%. This would have turned a $10K investment made 20 years ago into $112,558.09 today (as of 11/30/2020). On a total return basis, that’s a result of 1,026.28% (something to think about: how might CERN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cerner Corp. paid investors a total of $1.08/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 .72/share, we calculate that CERN has a current yield of approximately 0.96%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $6.75/share purchase price. This works out to a yield on cost of 14.22%.
One more investment quote to leave you with:
“The individual investor should act consistently as an investor and not as a speculator.” — Benjamin Graham
