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

Investing isn't easy. Even Warren Buffett counsels 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, Chevron (NYS: CVX) .

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

Source: S&P Capital IQ.

Since 1980, shares returned an average of 13.7% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up fast: $1,000 invested in the S&P in 1980 would be worth $29,400 today. In Chevron, it'd be worth $60,000.

Dividends accounted for a lot of that gain. Compounded since 1980, dividends have made up 75.8% of Chevron's total returns. For the S&P, dividends account for 41.5% of total returns.

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

Source: S&P Capital IQ.

Again, significant outperformance. Since 1995, Chevron's earnings per share have grown by an average of 19.4% a year, compared with 6% a year for the broader index. That's testament to the power of the company's scale, the wise investments of its management, and of course, the rising price of oil.

But that earnings-growth dynamic hasn't led to higher valuations. Chevron has traded for an average of 15.6 times earnings since 1980, compared with 21.3 times for the S&P.

Still, 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 Chevron with a five stars (out of five). Do you disagree? Leave your thoughts in the comment section below, and add Chevron to My Watchlist.

At the time thisarticle was published Fool contributorMorgan Houselowns shares of Chevron. Follow him on Twitter @TMFHousel.Motley Fool newsletter serviceshave recommended buying shares of Chevron. The Motley Fool has adisclosure 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.