“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 two-decade 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 two-decade investment into the stock back in 2000.
| Start date: | 12/08/2000 |
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| End date: | 12/07/2020 | ||||
| Start price/share: | $59.38 | ||||
| End price/share: | $92.97 | ||||
| Starting shares: | 168.42 | ||||
| Ending shares: | 212.07 | ||||
| Dividends reinvested/share: | $14.44 | ||||
| Total return: | 97.16% | ||||
| Average annual return: | 3.45% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $19,713.84 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 3.45%. This would have turned a $10K investment made 20 years ago into $19,713.84 today (as of 12/07/2020). On a total return basis, that’s a result of 97.16% (something to think about: how might COF shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Capital One Financial Corp paid investors a total of $14.44/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 .4/share, we calculate that COF has a current yield of approximately 0.43%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .4 against the original $59.38/share purchase price. This works out to a yield on cost of 0.72%.
One more investment quote to leave you with:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham
