“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a decade-long holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 10 years to 2012, investors considering an investment into shares of Discover Financial Services (NYSE: DFS) may have been pondering this very question and thinking about their potential investment result over a full decade-long time horizon. Here’s how that would have worked out.
|Average annual return:||14.80%|
As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 14.80%. This would have turned a $10K investment made 10 years ago into $39,742.45 today (as of 03/23/2022). On a total return basis, that’s a result of 297.26% (something to think about: how might DFS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and Discover Financial Services has paid $12.82/share in dividends to shareholders over the past 10 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of 2/share, we calculate that DFS has a current yield of approximately 1.81%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $33.83/share purchase price. This works out to a yield on cost of 5.35%.
More investment wisdom to ponder:
“In investing, what is comfortable is rarely profitable.” — Robert Arnott