“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a twenty year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 20 years to 2000, investors considering an investment into shares of McDonald’s Corp (NYSE: MCD) may have been pondering this very question and thinking about their potential investment result over a full twenty year time horizon. Here’s how that would have worked out.
|Average annual return:||11.88%|
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 11.88%. This would have turned a $10K investment made 20 years ago into $94,445.82 today (as of 07/02/2020). On a total return basis, that’s a result of 844.85% (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.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 20 years, McDonald’s Corp has paid $44.83/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 5/share, we calculate that MCD has a current yield of approximately 2.72%. 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 $32.19/share purchase price. This works out to a yield on cost of 8.45%.
Here’s one more great investment quote before you go:
“All the opportunity in the world means nothing if you don’t actually pull the trigger.” — Sam Zell