Stocks for the Long Run: Donaldson 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, Donaldson (NYS: DCI) .

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

Source: S&P Capital IQ.

Since 1980, shares have returned an average of 16.7% a year, compared with 11.1% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Donaldson, it'd be worth $140,700.

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

Now have a look at how Donaldson earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

That's pretty solid outperformance. Since 1995, earnings per share have grown by an average of 12.9% a year, compared with 6% annual growth for the broader index.

What has that meant for valuations? Not much. Donaldson has traded for an average of 22 times earnings since 1980 -- about the same as the 21 times earnings of the broader S&P 500.

Through it all, shares have been strong 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 Donaldson with a three-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Donaldson to My Watchlist.

The article Stocks for the Long Run: Donaldson 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. 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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