Stocks for the Long Run: American States Water 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, American States Water (NYSE: AWR  ) .

American States Water shares have easily outperformed the S&P 500 over the past quarter-century, and with less volatility:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 11.1% 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 American States Water, it'd be worth $29,000.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up three-quarters of American States Water's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how American States Water earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some underperformance here, but that isn't unexpected from a utility. Since 1995, American States Water's earnings per share have increased by an average of 4.3% a year, compared with 6% a year for the broader index.

What's that meant for valuations? American States Water has traded for an average of 19 times earnings since 1987 -- just below the 24 times earnings for 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 American States Water with a five-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add American States Water to My Watchlist.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2096866, ~/Articles/ArticleHandler.aspx, 7/25/2014 11:11:59 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement