“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 2005.
| Start date: | 03/10/2005 |
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| End date: | 03/07/2025 | ||||
| Start price/share: | $14.25 | ||||
| End price/share: | $29.20 | ||||
| Starting shares: | 701.75 | ||||
| Ending shares: | 802.89 | ||||
| Dividends reinvested/share: | $4.76 | ||||
| Total return: | 134.44% | ||||
| Average annual return: | 4.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,439.61 | ||||
As we can see, the twenty year investment result worked out as follows, with an annualized rate of return of 4.35%. This would have turned a $10K investment made 20 years ago into $23,439.61 today (as of 03/07/2025). On a total return basis, that’s a result of 134.44% (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 $4.76/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 2.47%. 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 $14.25/share purchase price. This works out to a yield on cost of 17.33%.
One more investment quote to leave you with:
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” — Albert Einstein
