“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering McKesson Corp (NYSE: MCK) back in 2002, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 04/08/2002 |
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| End date: | 04/05/2022 | ||||
| Start price/share: | $35.58 | ||||
| End price/share: | $307.00 | ||||
| Starting shares: | 281.06 | ||||
| Ending shares: | 329.77 | ||||
| Dividends reinvested/share: | $16.73 | ||||
| Total return: | 912.41% | ||||
| Average annual return: | 12.27% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $101,286.11 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 12.27%. This would have turned a $10K investment made 20 years ago into $101,286.11 today (as of 04/05/2022). On a total return basis, that’s a result of 912.41% (something to think about: how might MCK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that McKesson Corp paid investors a total of $16.73/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 1.88/share, we calculate that MCK has a current yield of approximately 0.61%. 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 $35.58/share purchase price. This works out to a yield on cost of 1.71%.
Another great investment quote to think about:
“Investors should purchase stocks like they purchase groceries, not like they purchase perfume.” — Benjamin Graham
