Investing isn't easy. Even Warren Buffett councils 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 members of the S&P 500 have performed compared with the index itself.
Step on up, General Electric
General Electric shares have modestly outperformed the S&P 500 over the last three decades:
Source: S&P Capital IQ.
Since 1980, shares returned an average of 13% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In General Electric, it'd be worth $50,400.
Dividends accounted for a lot of that gain. Compounded since 1980, dividends have made up 62.9% of General Electric's total returns. For the S&P, dividends account for 41.5% of total returns.
And now have a look at how General Electric's earnings compare with S&P 500 earnings:
Source: S&P Capital IQ.
Perhaps surprisingly, earnings have underperformed. Since 1995, General Electric's earnings per share have grown by an average of 3% a year, compared with 6% a year for the broader index. Much of that underperformance is due to the deterioration of its financial arm during the credit crisis of 2008.
Still, the company has commanded a premium valuation. General Electric has traded for an average of 26.7 times earnings since 1980, compared with 21.3 times for the S&P.
The company has been an above-average performer historically, but just barely.
The question is whether that can continue. That's where you come in. Our CAPS community currently ranks General Electric with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add General Electric to My Watchlist.
