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.
Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Abbott Laboratories. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.