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, Progressive (NYSE:PGR).
Progressive shares have easily outperformed the S&P 500 over the past quarter-century:
Since 1987, shares have returned an average of 15.1% a year, compared with 9.7% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Progressive, it'd be worth $89,700.
Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about a quarter of Progressive's total returns. For the S&P, dividends account for 39% of total returns.
Now have a look at how Progressive earnings compare with S&P 500 earnings:
Big outperformance here, too -- albeit with more volatility. Since 1995, Progressive's earnings per share have grown by an average of 11.2% a year, compared with 6% a year for the broader index.
What's that meant for valuations? Progressive has traded for an average of 23 times earnings since 1987 -- just below the 24 times earnings for the broader S&P 500. It's far different today, however. Progressive shares currently trade for about 16 times next year's expected earnings.
Through it all, shares have been strong performers over the past quarter-century.
Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Progressive with a two-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Progressive to My Watchlist.
Fool contributor Morgan Housel and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.