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“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


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