Stocks for the Long Run: United Technologies 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, United Technologies (NYS: UTX) .

United Technologies shares have crushed the S&P 500 over the last three decades:

Source: S&P Capital IQ.

Since 1980, shares returned an average of 14.3% 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 United Technologies, it'd be worth $72,400.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up about half of United Technologies' total returns. For the S&P, dividends account for 41.5% of total returns.

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

Source: S&P Capital IQ.

Pretty solid outperformance. Since 1995, United Technologies' earnings per share have grown by an average of 12.2% a year, compared with 6% a year for the broader index.

But that earnings-growth dynamic doesn't seem to have affected valuations. United Technologies has traded for an average of 21 times earnings since 1980 -- the exact same average as the S&P 500.

Through it all, the company has still been an above-average performer historically.

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