“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 2017.
| Start date: | 01/18/2017 |
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| End date: | 01/14/2022 | ||||
| Start price/share: | $149.74 | ||||
| End price/share: | $256.52 | ||||
| Starting shares: | 66.78 | ||||
| Ending shares: | 70.25 | ||||
| Dividends reinvested/share: | $7.74 | ||||
| Total return: | 80.21% | ||||
| Average annual return: | 12.52% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $18,018.87 | ||||
As we can see, the five year investment result worked out quite well, with an annualized rate of return of 12.52%. This would have turned a $10K investment made 5 years ago into $18,018.87 today (as of 01/14/2022). On a total return basis, that’s a result of 80.21% (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 $7.74/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 1.88/share, we calculate that MCK has a current yield of approximately 0.73%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.88 against the original $149.74/share purchase price. This works out to a yield on cost of 0.49%.
One more piece of investment wisdom to leave you with:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch
