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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
Warren Buffett’s observation highlights a central discipline of long-term investing: a willingness to look beyond short-term volatility and focus on the economic performance of the underlying business. Over a week or two, virtually anything can happen in equity markets. Macroeconomic data can surprise, interest rate expectations can change, and sector rotations can be abrupt. For investors operating with a genuine multi-year horizon, what matters is not the next headline, but what the investment looks like several years down the road.
To illustrate this concept, consider an investor in 2021 evaluating shares of McDonalds Corp (NYSE: MCD) and deliberately choosing a five-year time horizon, with dividends reinvested. The analysis below examines the outcome of a hypothetical $10,000 investment initiated in April 2021 and held through early April 2026.
| Start date: | 04/09/2021 |
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| End date: | 04/08/2026 | ||||
| Start price/share: | $231.48 | ||||
| End price/share: | $307.01 | ||||
| Starting shares: | 43.20 | ||||
| Ending shares: | 48.40 | ||||
| Dividends reinvested/share: | $31.66 | ||||
| Total return: | 48.60% | ||||
| Average annual return: | 8.24% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,857.27 | ||||
As we can see, the five-year investment result worked out positively, with an annualized rate of return of 8.24%. This would have turned a $10K investment made five years ago into $14,857.27 as of 04/08/2026. On a total return basis, that is a gain of 48.60%. For context, this period included the latter stages of the COVID-19 recovery, a sharp rise in inflation, and one of the most aggressive Federal Reserve tightening cycles in decades—a backdrop that produced significant volatility across global equity markets. Against that environment, an annualized mid-single- to high-single-digit return from a mature, large-cap consumer company appears consistent with McDonald’s profile as a defensive, dividend-paying compounder rather than a high-growth story.
It is also worth emphasizing the role of valuation and starting point. In early 2021, McDonald’s shares were trading at a premium multiple to the broader market, reflecting investor confidence in its brand strength, global scale, and franchise-based cash-flow model. The subsequent return therefore represents a combination of underlying earnings growth, dividend income, and modest multiple compression or expansion over time. Looking ahead, the same framework applies: an investor evaluating McDonald’s today needs to consider expected earnings growth, the sustainability of its dividend, and the degree to which current valuation embeds optimism about the company’s long-term prospects.
[These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price appreciation, another component of MCD’s total return over these five years has been the payment of $31.66 per share in dividends to shareholders. For an investor focused on compounding, this income stream is a critical driver of long-term performance.
Automatic reinvestment of dividends—the essence of a dividend reinvestment plan (DRIP)—can be a powerful mechanism for wealth creation. Each quarterly cash payment is deployed into additional shares, which in turn generate their own dividends in subsequent periods. Over time, this compounding effect can contribute materially to total return, particularly for companies with a record of consistent dividend growth. For the above calculations, dividends are presumed to be reinvested back into MCD at the closing price on each ex-dividend date, resulting in an increase in share count from 43.20 to 48.40 shares over the period.
McDonald’s long-term capital allocation strategy has emphasized a combination of steady dividend growth and share repurchases. The company initiated its dividend in the 1970s and has raised the dividend regularly for decades, placing it among the large-cap names that income-oriented investors often classify as “dividend growth” holdings. Over multi-decade periods, that combination of recurring cash returns and a durable global brand has helped position MCD as a core holding in many defensive and income-focused portfolios.
Based upon the most recent annualized dividend rate of $7.44 per share, we calculate that MCD has a current yield of approximately 2.42%. For income investors, this yield is competitive with many large-cap consumer staples and discretionary peers, while still leaving room in the company’s cash flow for reinvestment in the business and debt reduction.
Another useful datapoint is “yield on cost”—the current dividend expressed as a percentage of the original purchase price. If we compare the current annualized dividend of $7.44 against the original $231.48 per-share purchase price, the yield on cost is 3.21%. In other words, based on the initial capital deployed in 2021, the investor is now receiving an annual dividend stream equal to 3.21% of that original outlay. Over longer holding periods, especially when dividend growth outpaces inflation, yield on cost can rise meaningfully, providing a growing income stream without additional capital investment.
Of course, yield on cost is primarily a retrospective measure; it does not by itself indicate whether the stock is attractive for new capital today. For forward-looking decisions, investors should instead compare the current dividend yield and expected growth rate against alternative opportunities and their own required rate of return, while also assessing business fundamentals such as same-store sales trends, unit growth, franchisee health, and margin resilience.
When reflecting on a five-year holding period, it is also instructive to consider the sources of risk that an investor had to be comfortable living with. For McDonald’s, key risks over this timeframe included cost inflation for labor and ingredients, changing consumer preferences, competitive intensity within quick-service restaurants, currency fluctuations given its global footprint, and potential regulatory or political pressures in certain markets. The actual outcome—a near-50% total return with moderate volatility—underscores the resilience of McDonald’s business model, but it does not eliminate the need for ongoing risk assessment as conditions evolve.
For investors contemplating the next five years, the central question is how McDonald’s may navigate themes such as digital ordering and delivery, continued modernization of its restaurant base, menu innovation, and expansion in high-growth international markets. The company has invested heavily in technology—including mobile ordering, loyalty programs, and drive-thru enhancements—with the aim of increasing average check size, improving throughput, and deepening customer engagement. The degree to which these initiatives translate into sustained same-store sales growth will be a key determinant of future shareholder returns.
At the same time, longer-run total returns are likely to align with a combination of earnings-per-share growth and the ongoing dividend stream. For example, if McDonald’s can compound earnings at a mid-single-digit to high-single-digit rate and continue to return a meaningful portion of cash to shareholders, the company may remain a candidate for investors seeking a balance of income and moderate growth. However, as always, entry valuation will influence realized outcomes: paying a higher multiple for perceived quality can constrain future returns if growth or margins fall short of expectations.
More investment wisdom to ponder:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
Both the Buffett and Graham quotations point toward the same discipline illustrated by this McDonald’s case study: the importance of aligning one’s investment decisions with a clearly defined time horizon, a tolerance for interim volatility, and a realistic assessment of business quality. Investors who were prepared to “close the market” mentally in April 2021 and simply let the underlying business perform have, in this instance, been rewarded with a respectable compounded outcome.
Looking forward, the same framework applies. Before initiating or adding to a position—whether in McDonald’s or any other dividend payer—investors may wish to ask: if markets were to be volatile or even closed for five years, would they be comfortable relying on the economics of the underlying business and its dividend policy to work in their favor over that period? The answer to that question often matters more to long-term results than any short-term market forecast.
