“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 2017.
| Start date: | 09/28/2017 |
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| End date: | 09/27/2022 | ||||
| Start price/share: | $186.48 | ||||
| End price/share: | $64.47 | ||||
| Starting shares: | 53.63 | ||||
| Ending shares: | 56.40 | ||||
| Dividends reinvested/share: | $4.97 | ||||
| Total return: | -63.64% | ||||
| Average annual return: | -18.32% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $3,635.62 | ||||
As we can see, the five year investment result worked out poorly, with an annualized rate of return of -18.32%. This would have turned a $10K investment made 5 years ago into $3,635.62 today (as of 09/27/2022). On a total return basis, that’s a result of -63.64% (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 $4.97/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 .32/share, we calculate that GE has a current yield of approximately 0.50%. 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 $186.48/share purchase price. This works out to a yield on cost of 0.27%.
More investment wisdom to ponder:
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” — Peter Lynch
