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“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


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