“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten 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 Motors Co (NYSE: GM)? Today, we examine the outcome of a ten year investment into the stock back in 2010.
| Start date: | 12/21/2010 |
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| End date: | 12/18/2020 | ||||
| Start price/share: | $33.85 | ||||
| End price/share: | $41.01 | ||||
| Starting shares: | 295.42 | ||||
| Ending shares: | 382.15 | ||||
| Dividends reinvested/share: | $9.04 | ||||
| Total return: | 56.72% | ||||
| Average annual return: | 4.60% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $15,678.95 | ||||
As shown above, the ten year investment result worked out as follows, with an annualized rate of return of 4.60%. This would have turned a $10K investment made 10 years ago into $15,678.95 today (as of 12/18/2020). On a total return basis, that’s a result of 56.72% (something to think about: how might GM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that General Motors Co paid investors a total of $9.04/share in dividends over the 10 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 1.52/share, we calculate that GM has a current yield of approximately 3.70%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.52 against the original $33.85/share purchase price. This works out to a yield on cost of 10.93%.
One more investment quote to leave you with:
“You’ve got to be careful if you don’t know where you’re going, ’cause you might not get there.” — Yogi Berra
