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“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 2019, and take a look at what happened to investors who asked that very question about Discover Financial Services (NYSE: DFS), by taking a look at the investment outcome over a five year holding period.

Start date: 03/01/2019


End date: 02/28/2024
Start price/share: $71.84
End price/share: $123.25
Starting shares: 139.20
Ending shares: 156.72
Dividends reinvested/share: $10.62
Total return: 93.15%
Average annual return: 14.07%
Starting investment: $10,000.00
Ending investment: $19,313.33

As shown above, the five year investment result worked out quite well, with an annualized rate of return of 14.07%. This would have turned a $10K investment made 5 years ago into $19,313.33 today (as of 02/28/2024). On a total return basis, that’s a result of 93.15% (something to think about: how might DFS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Discover Financial Services paid investors a total of $10.62/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 2.8/share, we calculate that DFS has a current yield of approximately 2.27%. 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 $71.84/share purchase price. This works out to a yield on cost of 3.16%.

Another great investment quote to think about:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett