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By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Hilltop Holdings Inc. (NYSE:HTH) shareholders have seen the share price rise 60% over three years, well in excess of the market return (29%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 10% in the last year , including dividends .
Since the stock has added US$81m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
See our latest analysis for Hilltop Holdings
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
During the three years of share price growth, Hilltop Holdings actually saw its earnings per share (EPS) drop 9.9% 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.
The modest 2.0% dividend yield is unlikely to be propping up the share price. The revenue drop of 10.0% is as underwhelming as some politicians. The only thing that's clear is there is low correlation between Hilltop Holdings' share price and its historic fundamental data. Further research may be required!
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Take a more thorough look at Hilltop Holdings' financial health with this free report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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, Hilltop Holdings' TSR for the last 3 years was 68%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.