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 members of the S&P 500 have performed compared with the index itself.
Step on up, Coca-Cola (NYSE: KO).
Coca-Cola shares have simply crushed the S&P 500 over the last three decades:
Source: S&P Capital IQ.
Since 1980, shares returned an average of 16.4% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1980 would be worth US$29,400 today. In Coca-Cola, it'd be worth US$128,900.
Dividends accounted for a lot of that gain. Compounded since 1980, dividends have made up 58.1% of Coca-Cola's total returns. For the S&P, dividends account for 41.5% of total returns.
And now have a look at how Coca-Cola's earnings compare with S&P 500 earnings:
Source: S&P Capital IQ.
Again, significant outperformance. Since 1995, Coca-Cola's earnings per share have grown by an average of 7.1% a year, compared with 6% a year for the broader index. That's testament to the power of the company's brand, where most of its value lies, as well as incredible global growth.
That earnings-growth dynamic has also led to superior valuations. Coca-Cola has traded for an average of 34.7 times earnings since 1980, compared with 21.3 times for the S&P.
The company has been, without a doubt, an above-average performer historically.
The question is whether that can continue.
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The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
A version of this article, written by Motley Fool staff, originally appeared on fool.com
