Photo credit:

“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 two-decade 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 two-decade investment into the stock back in 2004.

Start date: 06/10/2004


End date: 06/07/2024
Start price/share: $15.31
End price/share: $27.75
Starting shares: 653.17
Ending shares: 734.97
Dividends reinvested/share: $4.24
Total return: 103.95%
Average annual return: 3.63%
Starting investment: $10,000.00
Ending investment: $20,407.74

As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 3.63%. This would have turned a $10K investment made 20 years ago into $20,407.74 today (as of 06/07/2024). On a total return basis, that’s a result of 103.95% (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 $4.24/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 2.59%. 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 $15.31/share purchase price. This works out to a yield on cost of 16.92%.

Another great investment quote to think about:
“While it might seem that anyone can be a value investor, the essential characteristics of this type of investor-patience, discipline, and risk aversion-may well be genetically determined.” — Seth Klarman