“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty 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 twenty year investment into the stock back in 1999.
| Start date: | 11/08/1999 |
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| End date: | 11/05/2019 | ||||
| Start price/share: | $1.11 | ||||
| End price/share: | $61.92 | ||||
| Starting shares: | 9,009.01 | ||||
| Ending shares: | 9,249.93 | ||||
| Dividends reinvested/share: | $1.85 | ||||
| Total return: | 5,627.55% | ||||
| Average annual return: | 22.43% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $573,110.77 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 22.43%. This would have turned a $10K investment made 20 years ago into $573,110.77 today (as of 11/05/2019). On a total return basis, that’s a result of 5,627.55% (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.]
Notice that Cognizant Technology Solutions Corp. paid investors a total of $1.85/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 .8/share, we calculate that CTSH has a current yield of approximately 1.29%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .8 against the original $1.11/share purchase price. This works out to a yield on cost of 116.22%.
Another great investment quote to think about:
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions.” — Joel Greenblatt
