“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade 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 two-decade investment into the stock back in 2002.
| Start date: | 07/22/2002 |
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| End date: | 07/19/2022 | ||||
| Start price/share: | $23.30 | ||||
| End price/share: | $256.50 | ||||
| Starting shares: | 429.18 | ||||
| Ending shares: | 733.67 | ||||
| Dividends reinvested/share: | $54.94 | ||||
| Total return: | 1,781.86% | ||||
| Average annual return: | 15.80% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $188,156.95 | ||||
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 15.80%. This would have turned a $10K investment made 20 years ago into $188,156.95 today (as of 07/19/2022). On a total return basis, that’s a result of 1,781.86% (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.]
Notice that McDonald’s Corp paid investors a total of $54.94/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 5.52/share, we calculate that MCD has a current yield of approximately 2.15%. 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 $23.30/share purchase price. This works out to a yield on cost of 9.23%.
More investment wisdom to ponder:
“I rarely think the market is right. I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it.” — Mark Cuban
