Stocks for the Long Run: Lancaster Colony 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, Lancaster Colony (Nasdaq: LANC  ) .                             

Lancaster Colony shares have easily outperformed the S&P 500 over the last quarter-century, with most of the outperformance occurring in the last decade:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 14.5% 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 Lancaster Colony, it'd be worth $76,700.                                                                                   

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about half of Lancaster Colony's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Lancaster Colony earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some underperformance, actually, with lots of volatility. Since 1995, Lancaster Colony earnings per share have increased by 4.7% per year, compared with 6% a year for the broader index.

What's that meant for valuations? Lancaster Colony has traded for an average of 16 times earnings since 1987 -- below the 24 times earnings of the broader S&P 500.

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 Lancaster Colony with a five-star rating (out of five). Care to disagree? Leave your thoughts in the comments section below, or add Lancaster Colony 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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