“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 twenty 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 twenty year investment into the stock back in 2002.
| Start date: | 02/19/2002 |
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| End date: | 02/17/2022 | ||||
| Start price/share: | $280.00 | ||||
| End price/share: | $98.46 | ||||
| Starting shares: | 35.71 | ||||
| Ending shares: | 62.81 | ||||
| Dividends reinvested/share: | $106.88 | ||||
| Total return: | -38.16% | ||||
| Average annual return: | -2.37% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,188.43 | ||||
The above analysis shows the twenty year investment result worked out poorly, with an annualized rate of return of -2.37%. This would have turned a $10K investment made 20 years ago into $6,188.43 today (as of 02/17/2022). On a total return basis, that’s a result of -38.16% (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 $106.88/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 .32/share, we calculate that GE has a current yield of approximately 0.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .32 against the original $280.00/share purchase price. This works out to a yield on cost of 0.12%.
Another great investment quote to think about:
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert Allen
