“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 McKesson Corp (NYSE: MCK)? Today, we examine the outcome of a two-decade investment into the stock back in 2004.
| Start date: | 04/22/2004 |
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| End date: | 04/19/2024 | ||||
| Start price/share: | $31.88 | ||||
| End price/share: | $524.83 | ||||
| Starting shares: | 313.68 | ||||
| Ending shares: | 366.36 | ||||
| Dividends reinvested/share: | $20.74 | ||||
| Total return: | 1,822.78% | ||||
| Average annual return: | 15.93% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $192,428.09 | ||||
As shown above, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 15.93%. This would have turned a $10K investment made 20 years ago into $192,428.09 today (as of 04/19/2024). On a total return basis, that’s a result of 1,822.78% (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 $20.74/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 2.48/share, we calculate that MCK has a current yield of approximately 0.47%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $31.88/share purchase price. This works out to a yield on cost of 1.47%.
Another great investment quote to think about:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
