“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 decade-long 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 2013, holding through to today.
| Start date: | 01/14/2013 |
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| End date: | 01/12/2023 | ||||
| Start price/share: | $11.02 | ||||
| End price/share: | $36.97 | ||||
| Starting shares: | 907.44 | ||||
| Ending shares: | 976.79 | ||||
| Dividends reinvested/share: | $3.15 | ||||
| Total return: | 261.12% | ||||
| Average annual return: | 13.70% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $36,108.10 | ||||
As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 13.70%. This would have turned a $10K investment made 10 years ago into $36,108.10 today (as of 01/12/2023). On a total return basis, that’s a result of 261.12% (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.]
Dividends are always an important investment factor to consider, and Southwest Airlines Co has paid $3.15/share in dividends to shareholders over the past 10 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the 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 1.95%. 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 $11.02/share purchase price. This works out to a yield on cost of 17.70%.
More investment wisdom to ponder:
“A risk-reward ratio is important, but so is an aggravation-satisfaction ratio.” — Muriel Siebert
