General Electric DRIP

Back in October 2004 I invested the proceeds from the forced sale of a mutual fund into a General Electric DRIP. I wanted a company that was large and well-established but was still focusing on innovation and growth. General Electric fit that profile and they have increased dividends for the past 31 consecutive years. That’s ultimately what I was looking for… a stable stock with a great dividend history. To boot, they have a number of great products. (However, I’m really bummed about NBC dropping iTunes support. Rather than restricting online support to just one service, it should be available as widely as possible. But that is another post…)

So I put that $993 into GE. I did the initial purchase with the help of NetStockDirect, which merged with Sharebuilder, which now is part of ING. Fortunately, I now can directly purchase my shares through BNY Mellon. I believe it cost something like $7.50 to set of the account. Dividends are reinvested automatically for free. Additional shares can be purchased for the low commission fee of $1. I have since added enough to bring the account up to $3000. And, since I have to pay for medical school, that is where it will stay until I start getting an income. I set up a Google Documents spreadsheet to keep track of how my investment is doing. My average cost per share is 34.46. In 3.14 years of investing I have earned $214.32 in dividends (am at about $97 a year right now) and have a profit of $260.46 (with the stock at 37.45). My compound annual growth rate is 2.68%, not too terribly good, but I’m in it for the long run.

I also put together a dividend growth calculator on the spreadsheet. GE for the last few years has averaged a 12% annual dividend growth. I assumed a 4% annual stock increase (very modest for GE since the the 10-year Average Annual Total Return is 10.70% for the year ending 12/31/2006). I then allowed the stock to grow with quarterly dividends being purchased. The good news is that if these variables hold for the next 20 years, my investment of $3000 will grow into $25,000. From there it will just continue to get larger and larger. Below is the chart that shows the hypothetical growth of GE Stock assuming these variables.

My goal now is to just forget about it and be pleasantly surprised when I’m 44 (wow, that seems a long ways away!)

Hypothetical Growth of GE Stock

Good resources:
Motley Fool: Drip Portfolio
Buy stock one DRIP at a time
the moneygardener: to DRIP or not to DRIP

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