“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a twenty year period?
Today, let’s look backwards in time to 2000, and take a look at what happened to investors who asked that very question about McCormick & Co Inc (NYSE: MKC), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 09/18/2000 |
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| End date: | 09/17/2020 | ||||
| Start price/share: | $14.09 | ||||
| End price/share: | $192.73 | ||||
| Starting shares: | 709.72 | ||||
| Ending shares: | 1,068.00 | ||||
| Dividends reinvested/share: | $23.60 | ||||
| Total return: | 1,958.35% | ||||
| Average annual return: | 16.32% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $205,971.61 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 16.32%. This would have turned a $10K investment made 20 years ago into $205,971.61 today (as of 09/17/2020). On a total return basis, that’s a result of 1,958.35% (something to think about: how might MKC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that McCormick & Co Inc paid investors a total of $23.60/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 2.48/share, we calculate that MKC has a current yield of approximately 1.29%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $14.09/share purchase price. This works out to a yield on cost of 9.16%.
Here’s one more great investment quote before you go:
“I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.” — Peter Lynch
MKC
