“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.
|Average annual return:||5.93%|
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