“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty 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 twenty year investment into the stock back in 2003.
| Start date: | 02/10/2003 |
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| End date: | 02/07/2023 | ||||
| Start price/share: | $27.40 | ||||
| End price/share: | $363.61 | ||||
| Starting shares: | 364.96 | ||||
| Ending shares: | 427.61 | ||||
| Dividends reinvested/share: | $18.10 | ||||
| Total return: | 1,454.85% | ||||
| Average annual return: | 14.70% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $155,451.43 | ||||
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 14.70%. This would have turned a $10K investment made 20 years ago into $155,451.43 today (as of 02/07/2023). On a total return basis, that’s a result of 1,454.85% (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 $18.10/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 2.16/share, we calculate that MCK has a current yield of approximately 0.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.16 against the original $27.40/share purchase price. This works out to a yield on cost of 2.15%.
One more investment quote to leave you with:
“In the long run, we are all dead.” — John Maynard Keynes
