Stocks for the Long Run: W.W. Grainger 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, W.W. Grainger (NYSE: GWW  ) .

W.W. Grainger shares have easily outperformed the S&P 500 over the past quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 13.8% 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 W.W. Grainger, it'd be worth $63,400.

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

Now have a look at how W.W. Grainger earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Nice outperformance here, too. Since 1995, W.W. Grainger earnings per share have increased by an average of 10.4% a year, compared with 6% a year for the broader index.

What's that meant for valuations? W.W. Grainger has traded for an average of 19 times earnings since 1987 -- a bit below the 24 times earnings of the broader S&P 500.

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

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