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“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

— Warren Buffett

Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into McDonald’s Corp (NYSE: MCD) back in 2000: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.

Start date: 06/01/2000


End date: 05/29/2020
Start price/share: $35.62
End price/share: $186.32
Starting shares: 280.70
Ending shares: 465.17
Dividends reinvested/share: $44.83
Total return: 766.71%
Average annual return: 11.40%
Starting investment: $10,000.00
Ending investment: $86,688.35

As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 11.40%. This would have turned a $10K investment made 20 years ago into $86,688.35 today (as of 05/29/2020). On a total return basis, that’s a result of 766.71% (something to think about: how might MCD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that McDonald’s Corp paid investors a total of $44.83/share in dividends over the 20 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 5/share, we calculate that MCD has a current yield of approximately 2.68%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5 against the original $35.62/share purchase price. This works out to a yield on cost of 7.52%.

Here’s one more great investment quote before you go:
“The greater the passive income you can build, the freer you will become.” — Todd Fleming