Banco de Chile's (SNSE:CHILE) investors will be pleased with their respectable 49% return over the last three years

By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, Banco de Chile (SNSE:CHILE) shareholders have seen the share price rise 22% over three years, well in excess of the market decline (1.5%, not including dividends).

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Banco de Chile

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. 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.

Banco de Chile was able to grow its EPS at 36% per year over three years, sending the share price higher. This EPS growth is higher than the 7% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. This cautious sentiment is reflected in its (fairly low) P/E ratio of 8.28.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It is of course excellent to see how Banco de Chile has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Banco de Chile's financial health with this free report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for Banco de Chile the TSR over the last 3 years was 49%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Banco de Chile has rewarded shareholders with a total shareholder return of 33% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 5% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 2 warning signs for Banco de Chile (1 is a bit unpleasant) that you should be aware of.

We will like Banco de Chile better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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

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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.