“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 decade-long 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 decade-long investment into the stock back in 2012.
| Start date: | 06/06/2012 |
|
|||
| End date: | 06/03/2022 | ||||
| Start price/share: | $145.20 | ||||
| End price/share: | $76.97 | ||||
| Starting shares: | 68.87 | ||||
| Ending shares: | 86.71 | ||||
| Dividends reinvested/share: | $41.58 | ||||
| Total return: | -33.26% | ||||
| Average annual return: | -3.96% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,676.82 | ||||
The above analysis shows the decade-long investment result worked out poorly, with an annualized rate of return of -3.96%. This would have turned a $10K investment made 10 years ago into $6,676.82 today (as of 06/03/2022). On a total return basis, that’s a result of -33.26% (something to think about: how might GE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that General Electric Co paid investors a total of $41.58/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 .32/share, we calculate that GE has a current yield of approximately 0.42%. 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 $145.20/share purchase price. This works out to a yield on cost of 0.29%.
More investment wisdom to ponder:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett
