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