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Stocks for the Long Run: Dominion Resources vs. the S&P 500

By Motley Fool Staff – Updated Apr 7, 2017 at 12:43PM

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A long history of returns.

Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500. He says that way "you'll be buying into a wonderful industry, which in effect is all of American industry."

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, Dominion Resources (NYSE: D).                                  

Dominion Resources shares have easily outperformed the S&P 500 over the last quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 11.1% a year, compared with 9.7% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Dominion Resources, it'd be worth $29,000.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 80% of Dominion Resources' total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Dominion Resources earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some underperformance here. Since 1995, Dominion Resources earnings per share have increased by an average of 4.8% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Dominion Resources has traded for an average of 19 times earnings since 1987 -- below the 24 times earnings of the broader S&P 500.

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 Dominion Resources with a four-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Dominion Resources 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.

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Stocks Mentioned

Dominion Resources, Inc. Stock Quote
Dominion Resources, Inc.
D
$69.11 (-2.74%) $-1.95

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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