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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

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


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