“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Southwest Airlines Co (NYSE: LUV)? Today, we examine the outcome of a twenty year investment into the stock back in 2003.
| Start date: | 02/20/2003 |
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| End date: | 02/17/2023 | ||||
| Start price/share: | $12.25 | ||||
| End price/share: | $35.36 | ||||
| Starting shares: | 816.33 | ||||
| Ending shares: | 895.13 | ||||
| Dividends reinvested/share: | $3.37 | ||||
| Total return: | 216.52% | ||||
| Average annual return: | 5.93% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $31,660.41 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 5.93%. This would have turned a $10K investment made 20 years ago into $31,660.41 today (as of 02/17/2023). On a total return basis, that’s a result of 216.52% (something to think about: how might LUV shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Southwest Airlines Co paid investors a total of $3.37/share in dividends over the 20 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 2.04%. 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 $12.25/share purchase price. This works out to a yield on cost of 16.65%.
More investment wisdom to ponder:
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger
