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, Cincinnati Financial (NASDAQ:CINF).
Cincinnati Financial shares have easily outperformed the S&P 500 over the past quarter-century:
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). One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Cincinnati Financial, it'd be worth $28,900.
Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 60% of Cincinnati Financial's total returns. For the S&P, dividends account for 39% of total returns.
Now have a look at how Cincinnati Financial earnings compare with S&P 500 earnings:
Some underperformance here. Since 1995, Cincinnati Financial's earnings per share have declined by an average of 2.4% a year, compared with 6% a year gain for the broader index.
What's that meant for valuations? Cincinnati Financial has traded for an average of 23 times earnings since 1987 -- just below the 24 times earnings for the broader S&P 500.
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 Cincinnati Financial with a four-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Cincinnati Financial 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.