Buying a low-cost index fund will get you the average market return. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) share price is up 12% in the last three years, that falls short of the market return. Zooming in, the stock is up just 1.3% in the last year.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Bank of N.T. Butterfield & Son achieved compound earnings per share growth of 0.3% per year. In comparison, the 4% per year gain in the share price outpaces the EPS growth. So it's fair to assume the market has a higher opinion of the business than it did three years ago. That's not necessarily surprising considering the three-year track record of earnings growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Bank of N.T. Butterfield & Son has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Bank of N.T. Butterfield & Son will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Bank of N.T. Butterfield & Son, it has a TSR of 32% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Bank of N.T. Butterfield & Son shareholders have received a total shareholder return of 6.6% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 3% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Bank of N.T. Butterfield & Son , and understanding them should be part of your investment process.
Of course Bank of N.T. Butterfield & Son 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 US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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