Stocks for the Long Run: General Mills 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, General Mills (NYSE: GIS  ) .

General Mills shares have simply crushed the S&P 500 over the past three decades:

Source: S&P Capital IQ.

Source: S&P Capital IQ.

Since 1980, shares returned an average of 14.9% 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 General Mills, it'd be worth $84,000.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up 70.4% of General Mills' total returns. For the S&P, dividends account for 41.5% of total returns.

And now have a look at how General Mills' earnings compared with S&P 500 earnings:

Source: S&P Capital IQ.

Source: S&P Capital IQ.

Pretty decent outperformance. Since 1995, General Mills' earnings per share have grown by an average of 8.1% a year, compared with 6% a year for the broader index. That's testament to the power of the company's brand, and smart capital allocation by management.

But that earnings-growth dynamic hasn't led to higher valuations. General Mills has traded for an average of 19.7 times earnings since 1980, compared with 21.3 times for the S&P.

Still, the company has been, without a doubt, an above-average performer historically.

The question is whether that trend can continue. That's where you come in. Our CAPS community currently ranks General Mills with a five-star rating (out of five). Do you disagree? Leave your thoughts in the comments section below, or add General Mills to My Watchlist.

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 don't 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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  • Report this Comment On June 11, 2012, at 7:54 PM, mm5525 wrote:

    GIS: Slow, boring, doesn't move much, and raises their already hefty dividend every year, year after year. My kind of stock. I'm gladly long GIS. Long live the General. .

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