Stocks for the Long Run: Pinnacle West Capital 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, Pinnacle West Capital (NYSE: PNW  ) .

Pinnacle West Capital 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 7% 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 Pinnacle West Capital, it'd be worth $8,700.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up 82% of Pinnacle West Capital's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Pinnacle West Capital earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some underperformance here, too, though that's not unexpected from a utility. Since 1995, Pinnacle West Capital's earnings per share have increased by an average of 1.2% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Pinnacle West Capital has traded for an average of 14 times earnings since 1987 -- below the 24 times earnings for the broader S&P 500.

Through it all, shares have been relative 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 Pinnacle West Capital with a three-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Pinnacle West Capital to My Watchlist.


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