Despite constant attempts by analysts and the media to complicate the basics of investing, there are only three ways a stock can create value for shareholders:

  1. Dividends.
  2. Earnings growth.
  3. Changes in valuation multiples.

In this series, we drill down on one company's returns to see how each of those three has played a role over the past decade. Step on up, Deere (NYSE: DE).

Deere shares returned 346% over the last decade. How'd they get there?

Dividends accounted for a decent part of it. Without dividends, shares returned 269% over the last 10 years.

Earnings growth was sensational. Deere's normalized earnings per share grew by an average of 29.6% per year from 2001 until today. That's leaps and bounds higher than the market average, and well ahead of Caterpillar (NYSE: CAT) or CNH Global (NYSE: CNH).

And have a look at Deere's valuation multiple:

Source: S&P Capital IQ.

Like most companies, Deere shares were overvalued a decade ago, and valuation multiples have since contracted. That's prevented part of the company's earnings growth from materializing into shareholder returns. Specifically, shares traded at 28 times earnings a decade ago, compared with 12.3 times earnings today. While that's muted returns over the past decade, it sets up current shareholders for solid returns going forward. At a relatively cheap 12.3 times earnings, Deere's valuation multiple may very well expand going forward, producing shareholder returns in excess of earnings growth.

Why is this stuff worth paying attention to? It's important to know not only how much a stock has returned, but where those returns came from. Sometimes earnings grow, but the market isn't willing to pay as much for those earnings. Sometimes earnings fall, but the market bids shares higher anyway. Sometimes both earnings and earnings multiples stay flat, but a company generates returns through dividends. Sometimes everything works together, and returns surge. Sometimes nothing works and they crash. All tell a different story about the state of a company. Not knowing why something happened can be just as dangerous as not knowing that something happened at all.