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By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Deutsche Pfandbriefbank AG (ETR:PBB) share price is up 39% in the last three years, clearly besting than the market return of around 16% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 0.5%, including dividends.
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. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the three years of share price growth, Deutsche Pfandbriefbank actually saw its earnings per share (EPS) drop 10% per year. Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it's worth considering other metrics as well.
We note that the dividend is higher than it was preciously, so that may have assisted the share price. It could be that the company is reaching maturity and dividend investors are buying for the yield.
Depicted in the graphic below, you'll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
If you are thinking of buying or selling Deutsche Pfandbriefbank stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Deutsche Pfandbriefbank the TSR over the last 3 years was 72%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Pleasingly, Deutsche Pfandbriefbank's total shareholder return last year was 0.5%. That includes the value of the dividend. That falls short of the 20% it has made, for shareholders, each year, over three years. Before forming an opinion on Deutsche Pfandbriefbank you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.