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“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: 05/24/2013
$10,000

05/24/2013
  $26,109

05/23/2023
End date: 05/23/2023
Start price/share: $47.68
End price/share: $101.90
Starting shares: 209.73
Ending shares: 256.25
Dividends reinvested/share: $14.58
Total return: 161.12%
Average annual return: 10.07%
Starting investment: $10,000.00
Ending investment: $26,109.82

As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 10.07%. This would have turned a $10K investment made 10 years ago into $26,109.82 today (as of 05/23/2023). On a total return basis, that’s a result of 161.12% (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.]

Beyond share price change, another component of DFS’s total return these past 10 years has been the payment by Discover Financial Services of $14.58/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).

Based upon the most recent annualized dividend rate of 2.8/share, we calculate that DFS has a current yield of approximately 2.75%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.8 against the original $47.68/share purchase price. This works out to a yield on cost of 5.77%.

One more piece of investment wisdom to leave you with:
“The best stock to buy is the one you already own.” — Peter Lynch