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, Merck (NYSE: MRK).

Merck 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 13.3% 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 Merck, it'd be worth $53,700.

Dividends accounted for a lot of that gain. Compounded since 1980, dividends have made up 64% of Merck's total returns. For the S&P, dividends account for 41.5% of total returns.

And now have a look at how Merck's earnings compare with S&P 500 earnings:


Source: S&P Capital IQ.

Not great -- mild underperformance. Since 1995, Merck's earnings per share have grown by an average of 3.3% a year, compared with 6% a year for the broader index. This is fairly standard in the large-cap pharmaceutical industry, which has struggled with competition from generics and a slowing pipeline for years. Furthermore, growth in spending on all prescription drugs has slowed in recent years.

That earnings-growth dynamic has still supported decent valuations. Merck has traded for an average of 21.7 times earnings since 1980, compared with 21.3 times for the S&P.

Through thick and thin, the company has been an above-average performer historically.

The question is whether that can continue. That's where you come in. Our CAPS community currently ranks Merck with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Merck to My Watchlist.