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“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— 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 five year holding period for an investor who was considering McDonald’s Corp (NYSE: MCD) back in 2017, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 11/02/2017


End date: 11/01/2022
Start price/share: $168.10
End price/share: $272.95
Starting shares: 59.49
Ending shares: 67.01
Dividends reinvested/share: $24.36
Total return: 82.89%
Average annual return: 12.83%
Starting investment: $10,000.00
Ending investment: $18,286.18

The above analysis shows the five year investment result worked out quite well, with an annualized rate of return of 12.83%. This would have turned a $10K investment made 5 years ago into $18,286.18 today (as of 11/01/2022). On a total return basis, that’s a result of 82.89% (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 $24.36/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 6.08/share, we calculate that MCD has a current yield of approximately 2.23%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.08 against the original $168.10/share purchase price. This works out to a yield on cost of 1.33%.

One more investment quote to leave you with:
“The function of economic forecasting is to make astrology look respectable.” — John Galbraith