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By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, The Bank of New York Mellon Corporation (NYSE:BK) shareholders have seen the share price rise 17% over three years, well in excess of the market return (10%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 13% in the last year , including dividends .
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
View our latest analysis for Bank of New York Mellon
There is no denying that markets are sometimes efficient, but prices do not always reflect 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 the three years of share price growth, Bank of New York Mellon actually saw its earnings per share (EPS) drop 1.1% per year.
Companies are not always focussed on EPS growth in the short term, and looking at how the share price has reacted, we don't think EPS is the most important metric for Bank of New York Mellon at the moment. So other metrics may hold the key to understanding what is influencing investors.
We severely doubt anyone is particularly impressed with the modest 2.6% three-year revenue growth rate. While we don't have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Bank of New York Mellon is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Bank of New York Mellon the TSR over the last 3 years was 28%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.