Stocks for the Long Run: Procter & Gamble vs. the S&P 500

Before you go, we thought you'd like these...
Before you go close icon

Investing isn't easy. Even Warren Buffett councils that most investors should invest in a low-cost index like the S&P 500. That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.

But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how members of the S&P 500 have performed compared with the index itself.

Step on up, Procter & Gamble (NYS: PG) .


Procter & Gamble shares have simply crushed the S&P 500 over the last three decades:

anImage

Source: S&P Capital IQ.

Since 1980, shares returned an average of 14.1% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Procter & Gamble, it'd be worth $68,300.

And now have a look at how Procter & Gamble's earnings compare with S&P 500 earnings:

anImage

Source: S&P Capital IQ.

Again, significant outperformance. Since 1995, Procter & Gamble's earnings per share have grown by an average of 8.2% a year, compared with 6% a year for the broader index. That's testament to the power of the company's brands, its global reach, and a set of smart, strategic acquisitions.

That earnings-growth dynamic has also played a role in valuations. Procter & Gamble has traded for an average of 25.2 times earnings since 1980, compared with 21.3 times for the S&P.

The company has been, without a doubt, an above-average performer historically.

The question is whether that can continue. That's where you come in. Our CAPS community currently ranks Procter & Gamble with a five-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Procter & Gamble to My Watchlist.

At the time this article was published Fool contributorMorgan Houselowns shares of Procter & Gamble. Follow him on Twitter @TMFHousel.Motley Fool newsletter services have recommended buying shares of Procter & Gamble. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners