Stocks for the Long Run: Occidental Petroleum 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, Occidental Petroleum (NYS: OXY) .

Occidental Petroleum shares have modestly outperformed the S&P 500 over the last three decades, with a big outperformance in recent years:


Source: S&P Capital IQ.

Since 1980, shares returned an average of 12% a year, compared with 11.1% a year for the S&P (both include dividends). Even that modest difference adds up fast. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Occidental Petroleum, it'd be worth $38,000.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up a whopping 84% of Occidental Petroleum's total returns. For the S&P, dividends account for 41.5% of total returns.

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


Source: S&P Capital IQ.

Substantial outperformance. Since 1995, Occidental Petroleum's earnings per share have grown by an average of 17.8% a year, compared with 6% a year for the broader index.

But that earnings-growth dynamic hasn't led to superior valuations. Occidental Petroleum has traded for an average of 21 times earnings since 1980 -- about the same as the broader S&P 500 over the same period (though energy companies rarely command above-average valuations).

Still, the company has been an above-average performer historically, particularly when one analyses its performance over the last decade.

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

At the time thisarticle was published Fool contributorMorgan Houseldoesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. 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.

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