Advertisement
Australia markets open in 7 hours 7 minutes
  • ALL ORDS

    8,303.50
    +60.20 (+0.73%)
     
  • AUD/USD

    0.6724
    -0.0011 (-0.17%)
     
  • ASX 200

    8,057.90
    +58.60 (+0.73%)
     
  • OIL

    82.65
    +1.89 (+2.34%)
     
  • GOLD

    2,460.20
    -7.60 (-0.31%)
     
  • Bitcoin AUD

    95,181.27
    -661.56 (-0.69%)
     
  • CMC Crypto 200

    1,329.92
    -12.41 (-0.92%)
     

Diversified United Investment's (ASX:DUI) investors will be pleased with their notable 44% return over the last five years

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Diversified United Investment Limited (ASX:DUI) has fallen short of that second goal, with a share price rise of 23% over five years, which is below the market return. Meanwhile, the last twelve months saw the share price rise 1.4%.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for Diversified United Investment

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

ADVERTISEMENT

During five years of share price growth, Diversified United Investment achieved compound earnings per share (EPS) growth of 1.2% per year. This EPS growth is lower than the 4% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Diversified United Investment's earnings, revenue and cash flow.

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. In the case of Diversified United Investment, it has a TSR of 44% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Diversified United Investment shareholders gained a total return of 4.8% during the year. But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 8% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.