Stocks for the Long Run: DuPont 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, DuPont (NYSE: DD  ) .

DuPont shares have roughly matched the S&P 500 over the last three decades:

Source: S&P Capital IQ.

Since 1980, shares returned an average of 11% a year, compared with 11.1% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1980 would be worth $29,400 today, and naturally about the same in DuPont.

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

Now have a look at how DuPont's earnings compared with S&P 500 earnings:

Source: S&P Capital IQ.

Pretty heavy underperformance. Since 1995, DuPont's earnings per share have grown by an average of 0.6% a year, compared with 6% a year for the broader index.

But that earnings-growth dynamic doesn't seem to have tarnished valuations. DuPont has traded for an average of 21.7 times earnings since 1980 -- about the same as the 21 times earnings the S&P 500 averaged during the period.

Through it all, DuPont's shares have been fairly average performers over the last three decades.  

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks DuPont with a five-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add DuPont 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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  • Report this Comment On June 18, 2012, at 2:34 PM, funfundvierzig wrote:

    This now much shrunken chemical conglomerate has lost much of its once fabled edge in research and innovation over the past decade. DuPont's first big effort to create a first-generation genetically-modified seed trait, DuPont OptimumGAT, to compete with industry leader Monsanto bombed because farmers cannot plant it on an alone basis without risk. Last year, DuPont Management produced a colossal new product failure, Imprelis, a turf herbicide turned toxic tree killer. The Imprelis debacle is a $billion-plus misfiring.

    DuPont continues to depend disproportionally on industrial chemicals such as TIO2, car paints, and sulphuric acid and innovations in materials from one-half century ago, such as Corian, Tyvek, Kevlar, Teflon, Nomex, undsoweiter.

    In our opinion, DD shares are over-priced, given the relative bleak past few years, and no big blockbusters apparent in the immediate future.

    ...funfun..

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