“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Capital One Financial Corp (NYSE: COF)? Today, we examine the outcome of a ten year investment into the stock back in 2010.
| Start date: | 05/05/2010 |
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| End date: | 05/04/2020 | ||||
| Start price/share: | $44.24 | ||||
| End price/share: | $61.59 | ||||
| Starting shares: | 226.04 | ||||
| Ending shares: | 260.61 | ||||
| Dividends reinvested/share: | $11.00 | ||||
| Total return: | 60.51% | ||||
| Average annual return: | 4.84% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,046.58 | ||||
As shown above, the ten year investment result worked out as follows, with an annualized rate of return of 4.84%. This would have turned a $10K investment made 10 years ago into $16,046.58 today (as of 05/04/2020). On a total return basis, that’s a result of 60.51% (something to think about: how might COF shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Capital One Financial Corp paid investors a total of $11.00/share in dividends over the 10 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 1.6/share, we calculate that COF has a current yield of approximately 2.60%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $44.24/share purchase price. This works out to a yield on cost of 5.88%.
One more piece of investment wisdom to leave you with:
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently.” — Jack Bogle
