“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year 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 five year investment into the stock back in 2015.
| Start date: | 08/07/2015 |
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| End date: | 08/06/2020 | ||||
| Start price/share: | $24.80 | ||||
| End price/share: | $6.33 | ||||
| Starting shares: | 403.23 | ||||
| Ending shares: | 452.21 | ||||
| Dividends reinvested/share: | $2.56 | ||||
| Total return: | -71.38% | ||||
| Average annual return: | -22.12% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $2,863.07 | ||||
The above analysis shows the five year investment result worked out poorly, with an annualized rate of return of -22.12%. This would have turned a $10K investment made 5 years ago into $2,863.07 today (as of 08/06/2020). On a total return basis, that’s a result of -71.38% (something to think about: how might GE shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that General Electric Co paid investors a total of $2.56/share in dividends over the 5 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 0.63%. 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 $24.80/share purchase price. This works out to a yield on cost of 2.54%.
More investment wisdom to ponder:
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch
