Stocks for the Long Run: Family Dollar Stores 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, Family Dollar Stores (NYS: FDO) .

Family Dollar Stores 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 20.3% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up really fast. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Family Dollar Stores, it'd be worth $374,800.

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

Now have a look at how Family Dollar Stores earnings compared with S&P 500 earnings:

Source: S&P Capital IQ.

Again, major outperformance. Since 1995, Family Dollar Stores' earnings per share have grown by an average of 15.1% a year, compared with 6% a year for the broader index. If there's one thing the recession did to consumers, it was making them giddy for a good bargain. That's been a boon to Family Dollar Stores.

What's it all meant for valuations? Not much. Family Dollar Stores has traded for an average of 20 times earnings since 1980 -- a hair below the 21 times earnings for the broader S&P 500.

Through it all, Family Dollar Stores shares have clearly 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 Family Dollar Stores with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Family Dollar Stores to My Watchlist.

The article Stocks for the Long Run: Family Dollar Stores vs. the S&P 500 originally appeared on Fool.com.

Fool contributor Morgan Housel doesn'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 that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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