“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a five year period?
Today, let’s look backwards in time to 2017, and take a look at what happened to investors who asked that very question about Capital One Financial Corp (NYSE: COF), by taking a look at the investment outcome over a five year holding period.
| Start date: | 08/11/2017 |
|
|||
| End date: | 08/10/2022 | ||||
| Start price/share: | $82.80 | ||||
| End price/share: | $112.74 | ||||
| Starting shares: | 120.77 | ||||
| Ending shares: | 131.42 | ||||
| Dividends reinvested/share: | $9.00 | ||||
| Total return: | 48.16% | ||||
| Average annual return: | 8.18% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,816.13 | ||||
As shown above, the five year investment result worked out well, with an annualized rate of return of 8.18%. This would have turned a $10K investment made 5 years ago into $14,816.13 today (as of 08/10/2022). On a total return basis, that’s a result of 48.16% (something to think about: how might COF shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Capital One Financial Corp paid investors a total of $9.00/share in dividends over the 5 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 2.13%. 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 $82.80/share purchase price. This works out to a yield on cost of 2.57%.
One more piece of investment wisdom to leave you with:
“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” — Mark Twain
