A 40 Year Case Study of an Investment in McDonald’s

Who can resist the siren call of the Golden Arches? Not thou. This case study looks at what would happen if my parents made a $15,000 investment in McDonald’s around the time my older brother was born.

Imagine it is June 4th, 1982. You take $15,000 out of your savings and purchase 221 shares of McDonald’s at the closing price of the day, which is $67.64/share. You plan on ignoring it for holding it for the next 40 years to pass down to your heirs. How did your investment turn out?

Scenario 1: You Do Not Reinvest Dividends and Hold your McDonald’s Shares

When you looked at your balance after May 27, 2022, you would have found:

• 8,982 shares after stock splits of McDonald’s at $251.87 per share for a total value of $2,262,305

• Cash dividends of $417,947 that would have been paid to you over the years you held your ownership stake

• Grand Total: $2,680,252; Annual Return: 13.84%; Return on Investment: 17,768%

To put into perspective, you have not bought a single share after your initial $15,000. You are sitting on $2,680,252 in MCD stock. You’ve cashed checks totaling $417,947, which you could have used to travel the world, buy a Tesla, send your heirs to college, decorate your home, purchase expensive clothes and accessories, or fund whatever hobbies you could think of. And now, you can sit back and collect an annual income of $49,581; a figure that should continue to grow as long as McDonald’s continues to profitably sell SPAM, Portuguese sausage, eggs, and rice!

To achieve all of this, once you had made the initial investment, you had to do nothing more. You had no commute. No boss to answer to. No meetings to attend. You had no responsibilities. You would have compounded your original $15,000 by 13.84% for 40 years.

Scenario 2: You Reinvest Dividends and Hold your McDonald’s Shares

What would your results be after 40 years if you hadn’t spent the $417,947 in cash dividends along the way? Instead, you reinvested the dividends and bought more shares of McDonald’s:

• 12,549 shares after stock splits of McDonald’s at $251.87 per share for a total value of $3,160,179

• Grand Total: $3,160,719; Annual Return: 14.31%; Return on Investment: 20,971%

You would have $479,927 more money if you chose to reinvest your dividends. That extra wealth came from the fractional shares your dividends bought you, which generated dividends of their own, which bought more fractional shares, which generated more dividends, in perpetuity.

In other words, for giving up spending the $417,947 in Scenario 1 over 40 years, you not only get to keep the $417,947, but you also earned an extra $479,927 on top of it.

Your 12,549 shares would pay you $69,270 per year instead of the $49,581 in Scenario 1. That extra $19,689 represents the dividends on your dividends that are now working for you. You would have compounded your original $15,000 by 14.31% over 40 years.

Why it matters:

For almost the entire 40 year holding period, McDonald’s stock never appeared to move between $68 to $250 per share. On paper that just represents a 3.34% annual return over 40 years. That’s why you can’t just take a quick glance at the stock price on Google Finance to tell what’s going on with a business. There are splits. There are dividends.

Key takeaways:

• Don’t sleep on old, boring, profitable, dividend paying companies.

• Invest in good businesses you believe in, sit back, and let time do the rest.