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 members of the S&P 500 have performed compared with the index itself.
Step on up, Abbott Laboratories
Abbott Laboratories shares have simply crushed the S&P 500 over the last three decades:
Source: S&P Capital IQ.
Since 1980, shares returned an average of 15.9% 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 Abbott Laboratories, it'd be worth $111,000.
Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up about half of Abbott Laboratories' total returns. For the S&P, dividends account for 41.5% of total returns.
And now have a look at how Abbott Laboratories' earnings compare with S&P 500 earnings:
Source: S&P Capital IQ.
Pretty solid outperformance. Since 1995, Abbott Laboratories' earnings per share have grown by an average of 7.5% a year, compared with 6% a year for the broader index. Abbot has been a high-quality company for decades, and its ability to generate strong earnings power hasn't diminished.
That earnings-growth dynamic has also led to superior valuations. Abbott Laboratories has traded for an average of 25.9 times earnings since 1980, compared with 21.3 times for the S&P.
Without a doubt, the company has been an above-average performer historically.
Of course, the important question is whether that can continue. That's where you come in. Our CAPS community currently ranks Abbott Laboratories with a five-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Abbott Laboratories to My Watchlist.
