“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 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 General Electric Co (NYSE: GE)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 04/27/2000 |
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| End date: | 04/24/2020 | ||||
| Start price/share: | $51.76 | ||||
| End price/share: | $6.26 | ||||
| Starting shares: | 193.20 | ||||
| Ending shares: | 345.55 | ||||
| Dividends reinvested/share: | $14.34 | ||||
| Total return: | -78.37% | ||||
| Average annual return: | -7.37% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $2,161.98 | ||||
The above analysis shows the two-decade investment result worked out poorly, with an annualized rate of return of -7.37%. This would have turned a $10K investment made 20 years ago into $2,161.98 today (as of 04/24/2020). On a total return basis, that’s a result of -78.37% (something to think about: how might GE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that General Electric Co paid investors a total of $14.34/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 .04/share, we calculate that GE has a current yield of approximately 0.64%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .04 against the original $51.76/share purchase price. This works out to a yield on cost of 1.24%.
More investment wisdom to ponder:
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” — Albert Einstein
