Bank of New York Mellon's (NYSE:BK) five-year total shareholder returns outpace the underlying earnings growth

The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. But The Bank of New York Mellon Corporation (NYSE:BK) has fallen short of that second goal, with a share price rise of 63% over five years, which is below the market return. But if you include dividends then the return is market-beating. However, more recent buyers should be happy with the increase of 38% over the last year.

Since the long term performance has been good but there's been a recent pullback of 3.2%, let's check if the fundamentals match the share price.

View our latest analysis for Bank of New York Mellon

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

During five years of share price growth, Bank of New York Mellon achieved compound earnings per share (EPS) growth of 3.6% per year. This EPS growth is lower than the 10% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into Bank of New York Mellon's key metrics by checking this interactive graph of Bank of New York Mellon's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Bank of New York Mellon the TSR over the last 5 years was 91%, 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

We're pleased to report that Bank of New York Mellon shareholders have received a total shareholder return of 42% over one year. Of course, that includes the dividend. That's better than the annualised return of 14% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Bank of New York Mellon you should know about.

Of course Bank of New York Mellon may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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