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, Lincoln National (LNC -2.41%).
Welcome to the financial crisis! Lincoln National shares have underperformed the S&P 500 over the past quarter-century:
Source: S&P Capital IQ.
Since 1987, shares have returned an average of 5.5% a year, compared with 9.7% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Lincoln National, it'd be worth just $5,500.
Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up 65% of Lincoln National's total returns. For the S&P, dividends account for 39% of total returns.
Now have a look at how Lincoln National earnings compare with S&P 500 earnings:
Source: S&P Capital IQ.
Underperformance here, too -- and with more volatility. Since 1995, Lincoln National's earnings per share have grown by an average of 4.8% a year, compared with 6% a year for the broader index.
What's that meant for valuations? Lincoln National has traded for an average of 19 times earnings since 1987 -- just below the 24 times earnings for the broader S&P 500. It's far different today, however. Lincoln National shares currently trade for about six times next year's expected earnings.
Through it all, shares have been disappointments 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 Lincoln National with a three-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Lincoln National to My Watchlist.
