“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 twenty year holding period for an investor who was considering Capital One Financial Corp (NYSE: COF) back in 2001, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 08/30/2001 |
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| End date: | 08/27/2021 | ||||
| Start price/share: | $55.24 | ||||
| End price/share: | $175.80 | ||||
| Starting shares: | 181.03 | ||||
| Ending shares: | 230.65 | ||||
| Dividends reinvested/share: | $16.36 | ||||
| Total return: | 305.48% | ||||
| Average annual return: | 7.25% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $40,561.37 | ||||
The above analysis shows the twenty year investment result worked out well, with an annualized rate of return of 7.25%. This would have turned a $10K investment made 20 years ago into $40,561.37 today (as of 08/27/2021). On a total return basis, that’s a result of 305.48% (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 $16.36/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 2.4/share, we calculate that COF has a current yield of approximately 1.37%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.4 against the original $55.24/share purchase price. This works out to a yield on cost of 2.48%.
More investment wisdom to ponder:
“You can get in much more trouble with a good idea than a bad idea, because you forget that the good idea has limits.” — Benjamin Graham
