“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a five year holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in Southwest Airlines Co (NYSE: LUV) back in 2017, holding through to today.
|Average annual return:||-7.64%|
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -7.64%. This would have turned a $10K investment made 5 years ago into $6,720.78 today (as of 07/18/2022). On a total return basis, that’s a result of -32.78% (something to think about: how might LUV shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of Southwest Airlines Co, investors have received $1.73/share in dividends these past 5 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use closing price on ex-date).
Based upon the most recent annualized dividend rate of .72/share, we calculate that LUV has a current yield of approximately 1.80%. 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 $61.41/share purchase price. This works out to a yield on cost of 2.93%.
Here’s one more great investment quote before you go:
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” — Charlie Munger