“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a decade-long holding period for an investor who was considering McDonald’s Corp (NYSE: MCD) back in 2009, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 05/08/2009 |
|
|||
| End date: | 05/07/2019 | ||||
| Start price/share: | $54.92 | ||||
| End price/share: | $198.04 | ||||
| Starting shares: | 182.08 | ||||
| Ending shares: | 247.23 | ||||
| Dividends reinvested/share: | $31.84 | ||||
| Total return: | 389.62% | ||||
| Average annual return: | 17.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $48,959.35 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 17.21%. This would have turned a $10K investment made 10 years ago into $48,959.35 today (as of 05/07/2019). On a total return basis, that’s a result of 389.62% (something to think about: how might MCD shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that McDonald’s Corp paid investors a total of $31.84/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 4.64/share, we calculate that MCD has a current yield of approximately 2.34%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.64 against the original $54.92/share purchase price. This works out to a yield on cost of 4.26%.
More investment wisdom to ponder:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
