Photo credit:

“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year 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 5 years to 2018, investors considering an investment into shares of Capital One Financial Corp (NYSE: COF) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.

Start date: 12/07/2018


End date: 12/06/2023
Start price/share: $82.67
End price/share: $113.77
Starting shares: 120.96
Ending shares: 132.47
Dividends reinvested/share: $10.00
Total return: 50.71%
Average annual return: 8.55%
Starting investment: $10,000.00
Ending investment: $15,071.25

The above analysis shows the five year investment result worked out well, with an annualized rate of return of 8.55%. This would have turned a $10K investment made 5 years ago into $15,071.25 today (as of 12/06/2023). On a total return basis, that’s a result of 50.71% (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 $10.00/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 2.11%. 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 $82.67/share purchase price. This works out to a yield on cost of 2.55%.

Here’s one more great investment quote before you go:
“People who invest make money for themselves; people who speculate make money for their brokers.” — Benjamin Graham