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As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term United Utilities Group PLC (LON:UU.) shareholders have had that experience, with the share price dropping 10% in three years, versus a market return of about 21%. It's down 14% in about a quarter.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for United Utilities Group
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, United Utilities Group moved from a loss to profitability. We would usually expect to see the share price rise as a result. So it's worth looking at other metrics to try to understand the share price move.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. Revenue has been pretty flat over three years, so that isn't an obvious reason shareholders would sell. So it might be worth looking at how revenue growth over time, in greater detail.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So we recommend checking out this free report showing consensus forecasts
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, United Utilities Group's TSR for the last 3 years was 3.1%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.