“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 McDonald’s Corp (NYSE: MCD)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 08/07/2015 |
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| End date: | 08/06/2020 | ||||
| Start price/share: | $98.92 | ||||
| End price/share: | $203.18 | ||||
| Starting shares: | 101.09 | ||||
| Ending shares: | 115.60 | ||||
| Dividends reinvested/share: | $20.60 | ||||
| Total return: | 134.88% | ||||
| Average annual return: | 18.61% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,486.03 | ||||
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 18.61%. This would have turned a $10K investment made 5 years ago into $23,486.03 today (as of 08/06/2020). On a total return basis, that’s a result of 134.88% (something to think about: how might MCD shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that McDonald’s Corp paid investors a total of $20.60/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 5/share, we calculate that MCD has a current yield of approximately 2.46%. 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 $98.92/share purchase price. This works out to a yield on cost of 2.49%.
One more investment quote to leave you with:
“We ignore outlooks and forecasts… we’re lousy at it and we admit it … everyone else is lousy too, but most people won’t admit it.” — Martin Whitman
