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, General Dynamics
General Dynamics shares have roughly matched the S&P 500 over the last three decades:
Source: S&P Capital IQ.
Since 1980, shares returned an average of 11.7% a year, compared with 11.1% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1980 would be worth $29,400 today, and naturally about the same in General Dynamics.
Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up about half of General Dynamics' total returns. For the S&P, dividends account for 41.5% of total returns.
Now have a look at how General Dynamics earnings compared with S&P 500 earnings:
Source: S&P Capital IQ.
Pretty nice outperformance. Since 1995, earnings per share have grown by an average of 13% a year, compared with 6% a year for the broader index. Having a large customer impervious to budget restraint (the government) can do wonders for earnings.
What's it all meant for valuations? General Dynamics has traded for an average of 17 times earnings since 1980 -- below the 21 times earnings for the broader S&P 500.
Through it all, shares have been fairly average performers over the last three decades.
Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks General Dynamics with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add General Dynamics 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 General Dynamics Corporation. 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.