These days, it’s easy to just buy an index fund, and your returns should (roughly) match the market. But investors can increase returns by choosing market-leading companies in which to hold stocks. For example, the Group of plc drivers (LON: DRV) the share price has risen 46% over the past year, significantly outperforming the market yield by around 32% (excluding dividends). If he can maintain this outperformance over the long term, investors will do very well! On the flip side, longer-term shareholders have had a tougher run, with the stock falling 14% in three years.
After a strong gain last week, it’s worth seeing if long-term returns have been boosted by improving fundamentals.
To quote Buffett, “Ships will sail around the world but the Flat Earth Society will thrive. There will continue to be wide spreads between price and value in the market … ”By comparing earnings per share (EPS) and changes in stock prices over time, we can get a feel for the changes in investor attitudes towards a company over time.
Over the past year, Driver Group has seen its earnings per share drop 67%.
This means that the market is unlikely to judge the company based on earnings growth. This is because when EPS is going down but the stock price is going up, it often means that the market is taking other factors into account.
We are skeptical that the 1.1% dividend yield would make buyers turn to stocks. Driver Group’s revenue actually fell 12% from last year. So, using a snapshot of key trade metrics doesn’t give us a good idea of why the market is increasing the stock.
You can see how income and income have changed over time in the image below (click on the graph to see the exact values).
You can see how his track record has strengthened (or weakened) over time in this free interactive graphic.
What about dividends?
When considering investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any discounted capital increase and spinoff. It’s fair to say that the TSR gives a more complete picture of dividend paying stocks. In the case of Driver Group, it has a TSR of 51% for the past year. This exceeds its share price return that we mentioned earlier. And there’s no price guessing that dividend payments are a big reason for the discrepancy!
A different perspective
It is nice to see that Driver Group shareholders have received a total shareholder return of 51% over the past year. Of course, this includes the dividend. As the 1-year TSR is better than the 5-year TSR (the latter standing at 4% per year), it seems that the stock’s performance has improved in recent times. Someone with an optimistic outlook might view the recent improvement in TSR as indicating that the business itself is improving over time. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To do this, you need to know the 5 warning signs we spotted with Driver Group .
Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of companies that we believe will increase their profits.
Please note that the market returns quoted in this article reflect the market weighted average returns of stocks currently traded on UK stock exchanges.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.