Stocks for the Long Run: Progressive 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, Progressive (NYSE: PGR  ) .

Progressive 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 15.1% 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 Progressive, it'd be worth $89,700.

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

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

Source: S&P Capital IQ.

Big outperformance here, too -- albeit with more volatility. Since 1995, Progressive's earnings per share have grown by an average of 11.2% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Progressive has traded for an average of 23 times earnings since 1987 -- just below the 24 times earnings for the broader S&P 500. It's far different today, however. Progressive shares currently trade for about 16 times next year's expected earnings.

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 Progressive with a two-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Progressive to My Watchlist.