“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 2016.
| Start date: | 11/09/2016 |
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| End date: | 11/08/2021 | ||||
| Start price/share: | $114.98 | ||||
| End price/share: | $253.10 | ||||
| Starting shares: | 86.97 | ||||
| Ending shares: | 98.44 | ||||
| Dividends reinvested/share: | $22.60 | ||||
| Total return: | 149.16% | ||||
| Average annual return: | 20.03% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $24,914.32 | ||||
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 20.03%. This would have turned a $10K investment made 5 years ago into $24,914.32 today (as of 11/08/2021). On a total return basis, that’s a result of 149.16% (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 $22.60/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 5.52/share, we calculate that MCD has a current yield of approximately 2.18%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.52 against the original $114.98/share purchase price. This works out to a yield on cost of 1.90%.
One more investment quote to leave you with:
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett
