Stocks for the Long Run: Bristol-Myers Squibb 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, Bristol-Myers Squibb (NYSE: BMY  ) .

Bristol-Myers Squibb shares have moderately outperformed the S&P 500 over the last three decades:

Source: S&P Capital IQ.

Since 1980, shares returned an average of 13% 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 Bristol-Myers Squibb, it'd be worth $50,000.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up 72% of Bristol-Myers Squibb's total returns. For the S&P, dividends account for 41.5% of total returns.

Now have a look at how Bristol-Myers Squibb's earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Perhaps surprisingly, there's slight underperformance. Since 1995, Bristol-Myers Squibb's earnings per share have grown by an average of 5.6% a year, compared with 6% a year for the broader index.

But that earnings-growth dynamic doesn't seem to have affected valuations. Bristol-Myers Squibb has traded for an average of 21.5 times earnings since 1980 -- the exact same average as the S&P 500.

Through it all, the company has still been an above-average performer historically.

Of course, the important question is whether that can continue. That's where you come in. Our CAPS community currently ranks Bristol-Myers Squibb with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Bristol-Myers Squibb 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.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 1912820, ~/Articles/ArticleHandler.aspx, 7/29/2014 3:24:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement