“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 2001, and take a look at what happened to investors who asked that very question about McDonald’s Corp (NYSE: MCD), by taking a look at the investment outcome over a twenty year holding period.
|Average annual return:||13.99%|
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 13.99%. This would have turned a $10K investment made 20 years ago into $137,341.72 today (as of 08/04/2021). On a total return basis, that’s a result of 1,274.41% (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 $49.73/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 5.16/share, we calculate that MCD has a current yield of approximately 2.20%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.16 against the original $28.80/share purchase price. This works out to a yield on cost of 7.64%.
One more piece of investment wisdom to leave you with:
“If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.” — Warren Buffett