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“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— Warren Buffett

The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a decade-long period?

Today, let’s look backwards in time to 2012, and take a look at what happened to investors who asked that very question about Southwest Airlines Co (NYSE: LUV), by taking a look at the investment outcome over a decade-long holding period.

Start date: 06/28/2012
$10,000

06/28/2012
$43,115

06/27/2022
End date: 06/27/2022
Start price/share: $9.21
End price/share: $36.99
Starting shares: 1,085.78
Ending shares: 1,165.37
Dividends reinvested/share: $2.99
Total return: 331.07%
Average annual return: 15.73%
Starting investment: $10,000.00
Ending investment: $43,115.49

The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 15.73%. This would have turned a $10K investment made 10 years ago into $43,115.49 today (as of 06/27/2022). On a total return basis, that’s a result of 331.07% (something to think about: how might LUV shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Southwest Airlines Co paid investors a total of $2.99/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 .72/share, we calculate that LUV has a current yield of approximately 1.95%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $9.21/share purchase price. This works out to a yield on cost of 21.17%.

One more investment quote to leave you with:
“The function of economic forecasting is to make astrology look respectable.” — John Galbraith