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Stocks for the Long Run: Pinnacle West Capital vs. the S&P 500

By Motley Fool Staff - Nov 7, 2012 at 8:52PM

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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. 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, Pinnacle West Capital ( PNW 0.20% ).

Pinnacle West Capital shares have underperformed the S&P 500 over the past quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 7% 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 Pinnacle West Capital, it'd be worth $8,700.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up 82% of Pinnacle West Capital's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Pinnacle West Capital earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some underperformance here, too, though that's not unexpected from a utility. Since 1995, Pinnacle West Capital's earnings per share have increased by an average of 1.2% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Pinnacle West Capital has traded for an average of 14 times earnings since 1987 -- below the 24 times earnings for the broader S&P 500.

Through it all, shares have been relative disappointments 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 Pinnacle West Capital with a three-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Pinnacle West Capital to My Watchlist.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Pinnacle West Capital Corporation Stock Quote
Pinnacle West Capital Corporation
PNW
$66.56 (0.20%) $0.13

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

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