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One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, Industrial and Commercial Bank of China Limited (HKG:1398) shareholders have seen the share price rise 29% over three years, well in excess of the market return (13%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 12% , including dividends .
Check out our latest analysis for Industrial and Commercial Bank of China
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Industrial and Commercial Bank of China was able to grow its EPS at 3.3% per year over three years, sending the share price higher. In comparison, the 8.9% 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. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Industrial and Commercial Bank of China the TSR over the last 3 years was 50%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Industrial and Commercial Bank of China shareholders have received a total shareholder return of 12% over the last year. Of course, that includes the dividend. That's better than the annualised return of 6.8% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Before forming an opinion on Industrial and Commercial Bank of China you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.