“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into McKesson Corp (NYSE: MCK)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 10/06/2014 |
|
|||
| End date: | 10/03/2019 | ||||
| Start price/share: | $196.62 | ||||
| End price/share: | $131.10 | ||||
| Starting shares: | 50.86 | ||||
| Ending shares: | 52.99 | ||||
| Dividends reinvested/share: | $6.29 | ||||
| Total return: | -30.53% | ||||
| Average annual return: | -7.03% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,948.44 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -7.03%. This would have turned a $10K investment made 5 years ago into $6,948.44 today (as of 10/03/2019). On a total return basis, that’s a result of -30.53% (something to think about: how might MCK shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that McKesson Corp paid investors a total of $6.29/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 1.64/share, we calculate that MCK has a current yield of approximately 1.25%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.64 against the original $196.62/share purchase price. This works out to a yield on cost of 0.64%.
One more piece of investment wisdom to leave you with:
“Money is better than poverty, if only for financial reasons.” — Woody Allen
