Stocks for the Long Run: VF 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, VF (NYSE: VFC  ) .

VF 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 19.6% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up really fast. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In VF, it'd be worth $303,500.

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

Now have a look at VF earnings compared with S&P 500 earnings:

Source: S&P Capital IQ.

Source: S&P Capital IQ.

Pretty steady outperformance. Since 1995, earnings per share have grown by an average of 10.3% a year, compared with 6% a year for the broader index. VF has a smart business model of using cash flow from entrenched brands like Wrangler Jeans to finance high-growth brands like The North Face. It's worked wonders over time.

What's it all meant for valuations? VF has traded for an average of 15 times earnings since 1980 -- below the 21 times earnings for the broader S&P 500.

Through it all, VF shares have clearly been outperformers over the past three decades.  

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