“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Cognizant Technology Solutions Corp. (NASD: CTSH)? Today, we examine the outcome of a five year investment into the stock back in 2016.
| Start date: | 09/27/2016 |
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| End date: | 09/24/2021 | ||||
| Start price/share: | $54.40 | ||||
| End price/share: | $77.62 | ||||
| Starting shares: | 183.82 | ||||
| Ending shares: | 193.82 | ||||
| Dividends reinvested/share: | $3.65 | ||||
| Total return: | 50.44% | ||||
| Average annual return: | 8.52% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $15,043.69 | ||||
The above analysis shows the five year investment result worked out well, with an annualized rate of return of 8.52%. This would have turned a $10K investment made 5 years ago into $15,043.69 today (as of 09/24/2021). On a total return basis, that’s a result of 50.44% (something to think about: how might CTSH shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cognizant Technology Solutions Corp. paid investors a total of $3.65/share in dividends over the 5 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 .96/share, we calculate that CTSH has a current yield of approximately 1.24%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .96 against the original $54.40/share purchase price. This works out to a yield on cost of 2.28%.
One more piece of investment wisdom to leave you with:
“If you can follow only one bit of data, follow the earnings.” — Peter Lynch
