By David Fried, The Buyback Letter

Our Buyback Premium Portfolio is beating the S&P 500 by more than 61% since its inception in 2000 vs. a gain of 0.19% in the S&P 500 over the same time frame.

This month, we are adding two financial services firms to our portfolio: Discover Financial Services (DFS), a direct banking and payment services company with one of the most recognized brands in U.S. financial services, and Lincoln National (LNC), a seller of life instance and annuities.

Begun in 1986, Discover Financial Services has become one of the largest card issuers in the U.S., operating the Discover card, loans (home, private student and personal), online savings accounts, certificates of deposit and money market accounts through its direct banking business.

Its payment businesses consist of Discover Network, PULSE (a leading ATM/debit network) and Diners Club International, a global payments network in more than 185 countries and territories.

Recently, Discover teamed up with eBay's (EBAY) PayPal to allow shoppers to use their PayPal accounts for purchases at any merchant location that accepts Discover.

In late September, Discover reported its 10th straight quarter with a positive earnings surprise. Third-quarter 2012 earnings were $1.21 per share, advancing from last year by 2.5%. Total revenue (net of interest expense) increased 9.8% year over year to $1.96 billion.

Net interest income improved 11% to $1.37 billion. Card sales volume advanced 4% from last year. During the reported quarter, DFS repurchased 10 million shares for $350 million under its $2 billion share repurchase program.

Analysts believe the company's strengths can be seen in several areas, such as its solid stock price, revenue growth, good cash flow from operations, growth in earnings per share and expanding profit margins. In the last 12 months, management has reduced shares outstanding by 5.6%.

Lincoln National Corp. has multiple insurance and retirement businesses in the U.S. It sells a range of wealth protection, accumulation, and retirement income products and solutions, including annuities; life, group life, disability and dental insurance; 401(k) and 403(b) plans; savings plans; and comprehensive financial planning and advisory services.

With headquarters near Philadelphia, it had assets under management of $168 billion as of June 30, 2012.

Highlights of the second quarter included group protection sales up 33%; net earned premium up 8%, retirement plan services deposits up 8%, income from operations per share up 8%, book value per share up 5%, repurchases of $150 million, return on equity of 12%. Lincoln has a market cap of $6.96 billion; shares are up 20+% year to date.

Analysts believe the company's strengths can be seen in revenue growth, solid stock price, increase in net income, attractive valuation levels and growth in earnings per share.

In August, LNC increased the size of its share buyback authorization to $1 billion. Management has reduced shares outstanding by 9.4% in the last 12 months.

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