Stocks for the Long Run: Emerson Electric 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, Emerson Electric (NYS: EMR) .

Emerson Electric shares have modestly outperformed the S&P 500 over the last three decades, with most of the outperformance occurring in recent years:

Source: S&P Capital IQ.

Since 1980, shares returned an average of 12.5% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up fast. A thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Emerson Electric, it'd be worth $43,600.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up two-thirds of Emerson Electric's total returns. For the S&P, dividends account for 41.5% of total returns.

Now have a look at how Emerson Electric's earnings have compared with the S&P 500's earnings:

Source: S&P Capital IQ.

Again, we see modest outperformance. Since 1995, Emerson Electric's earnings per share have grown by an average of 6.9% a year, compared with 6% a year for the broader index.

What has it all meant for valuations? Emerson Electric has traded for an average of 21 times earnings since 1980 -- about the same for the broader S&P 500. It's far different today, however. Emerson Electric currently trades for just more than 12 times forward earnings.

Through it all, Emerson Electric's shares have still been outperformers over the last three decades.

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

The article Stocks for the Long Run: Emerson Electric vs. the S&P 500 originally appeared on Fool.com.

Fool contributorMorgan Houseldoesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel.Motley Fool newsletter serviceshave recommended buying shares of Emerson Electric. 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.

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