“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a ten 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 ten year investment into the stock back in 2015.
| Start date: | 03/24/2015 |
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| End date: | 03/21/2025 | ||||
| Start price/share: | $44.92 | ||||
| End price/share: | $34.83 | ||||
| Starting shares: | 222.62 | ||||
| Ending shares: | 247.90 | ||||
| Dividends reinvested/share: | $4.36 | ||||
| Total return: | -13.66% | ||||
| Average annual return: | -1.46% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,632.28 | ||||
The above analysis shows the ten year investment result worked out poorly, with an annualized rate of return of -1.46%. This would have turned a $10K investment made 10 years ago into $8,632.28 today (as of 03/21/2025). On a total return basis, that’s a result of -13.66% (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.]
Notice that Southwest Airlines Co paid investors a total of $4.36/share in dividends over the 10 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 2.07%. 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 $44.92/share purchase price. This works out to a yield on cost of 4.61%.
Another great investment quote to think about:
“Investing is the intersection of economics and psychology.” — Seth Klarman
