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 individual stocks have performed against the broad S&P 500.
Step on up, Texas Instruments
Texas Instruments shares have easily outperformed the S&P 500 over the last quarter-century (including an absurd pop during the tech bubble):
Source: S&P Capital IQ.
Since 1987, shares have returned an average of 11.3% a year, compared with 9.7% a year for the S&P (both include dividends). That difference adds up. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Texas Instruments, it'd be worth $30,800.
Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made 28% of Texas Instruments' total returns. For the S&P, dividends account for 39% of total returns.
Now have a look at how Texas Instruments earnings compare with S&P 500 earnings:
Source: S&P Capital IQ.
There's some outperformance. Since 1995, earnings per share have increased by an average of 7.3% per year, compared with 6% annual growth for the broader index.
What's that meant for valuations? Texas Instruments has traded for an average of 40 times earnings since 1987 -- well above the 24 times earnings average of the S&P 500. It's far different today, however. Texas Instruments currently trades at a more reasonable 14 times next year's earnings.
Through it all, shares have been strong performers over the last quarter-century.
Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Texas Instruments with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Texas Instruments 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 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.