“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 decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Discover Financial Services (NYSE: DFS)? Today, we examine the outcome of a decade-long investment into the stock back in 2013.
| Start date: | 02/28/2013 |
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| End date: | 02/27/2023 | ||||
| Start price/share: | $38.53 | ||||
| End price/share: | $111.45 | ||||
| Starting shares: | 259.54 | ||||
| Ending shares: | 318.49 | ||||
| Dividends reinvested/share: | $14.78 | ||||
| Total return: | 254.96% | ||||
| Average annual return: | 13.50% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $35,490.27 | ||||
As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 13.50%. This would have turned a $10K investment made 10 years ago into $35,490.27 today (as of 02/27/2023). On a total return basis, that’s a result of 254.96% (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.]
Notice that Discover Financial Services paid investors a total of $14.78/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 2.4/share, we calculate that DFS has a current yield of approximately 2.15%. 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 $38.53/share purchase price. This works out to a yield on cost of 5.58%.
Here’s one more great investment quote before you go:
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” — George Soros
