Stocks for the Long Run: Colgate-Palmolive vs. the S&P 500

A long history of returns.

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, Colgate-Palmolive (NYSE: CL  ) .

Colgate-Palmolive 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 16.9% 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 Colgate-Palmolive, it'd be worth $146,500.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up 61% of Colgate-Palmolive's total returns. For the S&P, dividends account for 41.5% of total returns.

And now have a look at how Colgate-Palmolive's earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Again, significant outperformance. Since 1995, Colgate-Palmolive's earnings per share have grown by an average of 11.3% a year, compared with 6% a year for the broader index. That's testament to the power of the company's brand, where most of its value lies. It also says a lot about how simple businesses like toothpaste often trounce "breakthrough" companies that investors chase.

That earnings-growth dynamic has also led to superior valuations. Colgate-Palmolive has traded for an average of 26.1 times earnings since 1980, compared with 21.3 times for the S&P.

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

The question is whether that can continue. That's where you come in. Our CAPS community currently ranks Colgate-Palmolive with a five-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Colgate-Palmolive 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 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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10/23/2014 4:01 PM
CL $65.05 Down -0.27 -0.41%
Colgate-Palmolive CAPS Rating: *****

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