Stocks for the Long Run: SunTrust Banks 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 individual stocks have performed against the broad S&P 500.

Step on up, Sun Trust Banks (NYS: STI) .

Can you say financial crisis? Sun Trust Banks shares have strongly underperformed the S&P 500 over the last quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 6% a year, compared with 9.7% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Sun Trust Banks, it'd be worth just $6,402.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 40% of Sun Trust Banks' total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Sun Trust Banks earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Deep underperformance here. Since 1995, Sun Trust Banks earnings per share have declined by 5% per year, compared with 6% a year growth for the broader index.

What's that meant for valuations? Sun Trust Banks has traded for an average of 20 times earnings since 1987 -- below the 24 times earnings of the broader S&P 500.

Through it all, shares have been heavy laggards over the last quarter-century.

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

The article Stocks for the Long Run: SunTrust Banks 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 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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