“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 McKesson Corp (NYSE: MCK)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 12/15/2015 |
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| End date: | 12/14/2020 | ||||
| Start price/share: | $187.15 | ||||
| End price/share: | $172.33 | ||||
| Starting shares: | 53.43 | ||||
| Ending shares: | 56.08 | ||||
| Dividends reinvested/share: | $7.08 | ||||
| Total return: | -3.36% | ||||
| Average annual return: | -0.68% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,664.41 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -0.68%. This would have turned a $10K investment made 5 years ago into $9,664.41 today (as of 12/14/2020). On a total return basis, that’s a result of -3.36% (something to think about: how might MCK shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that McKesson Corp paid investors a total of $7.08/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 1.68/share, we calculate that MCK has a current yield of approximately 0.97%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.68 against the original $187.15/share purchase price. This works out to a yield on cost of 0.52%.
One more piece of investment wisdom to leave you with:
“The underlying principles of sound investment should not alter from decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate.” — Benjamin Graham
