Stocks for the Long Run: Franklin Resources 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 individual stocks have performed against the broad S&P 500. 

Step on up, Franklin Resources (NYSE: BEN  ) .

Franklin Resources shares have simply crushed the S&P 500 over the past quarter-century:

Source: S&P Capital IQ.

Source: S&P Capital IQ.

Since 1987, shares have returned an average 16.5% a year, compared with 9.7% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Franklin Resources, it'd be worth $131,700. 

Dividends accounted for some of those gains. Compounded since 1987, dividends have made up about a quarter of Franklin Resources' total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Franklin Resources earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Source: S&P Capital IQ.

Again, huge outperformance. Since 1995, earnings per share have increased by an average of 13.5% per year, compared with 6% annual growth for the broader index.

What's that meant for valuations? Franklin Resources has traded for an average of 22 times earnings since 1987 -- close to the 24 times earnings average of the S&P 500. It's far different today, however. Shares currently trade for about 12 times next year's earnings.

Through it all, shares have been strong performers over the last quarter-century.  

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


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  • Report this Comment On September 04, 2012, at 8:42 PM, rregisterca wrote:

    25 years sounds great, but according to PerfCharts over the last 5 years (since 7 Sep 2007), the s&p spyder has outperformed franklin resources. That is also true over the 3 years, 2 years and 1 year.

    It seems odd to recommend a stock based on impressive performance that occurred more than 5 years ago.

    With a 25 year horizon, what I'd like to see is a steady outperformance continuing through to the present.

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