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, Postal Savings Bank of China Co., Ltd. (HKG:1658) shareholders have seen the share price rise 12% over three years, well in excess of the market return (3.2%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 14% in the last year , 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 three years of share price growth, Postal Savings Bank of China achieved compound earnings per share growth of 4.7% per year. We note that the 4.0% yearly (average) share price gain isn't too far from the EPS growth rate. Coincidence? Probably not. That suggests that the market sentiment around the company hasn't changed much over that time. Au contraire, the share price change has arguably mimicked the EPS growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Postal Savings Bank of China's key metrics by checking this interactive graph of Postal Savings Bank of China's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Postal Savings Bank of China's TSR for the last 3 years was 24%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We're pleased to report that Postal Savings Bank of China rewarded shareholders with a total shareholder return of 14% over the last year. That's including the dividend. That's better than the annualized TSR of 7.6% over the last three years. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. Keeping this in mind, a solid next step might be to take a look at Postal Savings Bank of China's dividend track record. This free interactive graph is a great place to start.
Of course Postal Savings Bank of China may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK 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.