Stocks for the Long Run: Piedmont Natural Gas 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, Piedmont Natural Gas (NYSE: PNY  ) .

Piedmont Natural Gas 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 12% 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 Piedmont Natural Gas, it'd be worth $38,100.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up 72% of Piedmont Natural Gas's returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Piedmont Natural Gas earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some underperformance here, but that's not uncommon for a utility. Since 1995, Piedmont Natural Gas's earnings per share have grown by an average of 4.4% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Piedmont Natural Gas has traded for an average of 17 times earnings since 1987 -- 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 Piedmont Natural Gas with a four-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Piedmont Natural Gas to My Watchlist.

If you're on the lookout for some currently intriguing energy plays, check out The Motley Fool's "3 Stocks for $100 Oil." You can get free access to this special report by clicking here.


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