In This Article:
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. For example, Oversea-Chinese Banking Corporation Limited (SGX:O39) shareholders have seen the share price rise 32% over three years, well in excess of the market return (9.6%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 7.6% in the last year, including dividends.
See our latest analysis for Oversea-Chinese Banking
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During three years of share price growth, Oversea-Chinese Banking achieved compound earnings per share growth of 6.1% per year. In comparison, the 9.6% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It's not unusual to see the market 're-rate' a stock, after a few years of growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of Oversea-Chinese Banking's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Oversea-Chinese Banking, it has a TSR of 46% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.