3/24/2011 3:15 PM ET|
The 7 best stocks for a lifetime
'Forever' isn't just for stamps. A long-term investor's portfolio needs a solid core of keepers, and these proven companies fill the bill perfectly.
Is there anything worse than buying into a stock that was sure to go up and then holding on for years as the price erodes? It's gut-wrenching. I've done it. I used to trade in and out of risky companies, refusing to take a loss, hoping the shares would come back someday.
Usually, that "someday" didn't arrive. But I've reformed. I now buy for the long term, and let the businesses work for me.
Allow me to explain, and offer seven stocks that make an airtight core that can generate wealth forever.
Are you really investing for the long term? Answer this question: "Do I buy stocks on the assumption that it'd be fine if the market closed tomorrow and didn't reopen for five years?" That's the buying strategy that works for legendary investor Warren Buffett. If you're prepared to buy and hold for five years, nothing but the best-positioned companies will do.
A long-term perspective changes everything. You'll need to rely on companies that have dominant franchises, absolutely indispensable products and services, and managers capable of driving consistent returns.
That positioning (and the confidence that comes with it) means you don't have to worry about next week. You can even take a stock's decline in stride and realize that it makes a great buying opportunity.
Below are stocks you can hold forever. And if the markets did close for years, well, all but one of these companies pay solid and growing dividends. So let these guys do the work for you.
These stocks make a fantastic core for any portfolio, and they are divided among industries, providing you with diversification by sector and country. But two threads run throughout: These companies provide goods or services that are in constant demand regardless of the economic climate, and their businesses are resistant (though not immune) to technological innovation.
|To buy and hold|
|Company||Dividend yield||Compelling consideration|
|McDonald's (MCD)||3.3%||World's largest restaurant chain, just getting started in China and India.|
|Colgate-Palmolive (CL)||3.0%||Exposure to emerging markets, with ''sticky" products.|
|Weight Watchers International (WTW)||1.1%||Operating margins of 27%.|
|Brookfield Asset Management (BAM)||1.7%||Management has acquired strategic assets.|
|Markel (MKL)||N/A||Book value grew by 22% over recent 20-year period.|
|Exxon Mobil (XOM)||2.1%||Access to resources the world can't live without.|
|National Grid (NGG)||5.8%||Locked-in returns as a regulated utility.|
That's probably as diversified as seven stocks can get. Their blended yield comes out to 2.6%, so you're getting an above-market payout to keep or reinvest. The histories of these businesses are nothing short of remarkable, but the future looks pretty compelling, too.
Everyone knows McDonald's (MCD) as an American restaurant chain, but the company derives more sales from Europe than from the United States. And that's part of the huge opportunity here -- the Oak Brook, Ill., company has plans for rapid growth in India, China and other emerging economies.
Add hidden assets and management's commitment to return free cash to shareholders, and you have a dividend play for a lifetime.
Colgate-Palmolive (CL) also provides investors with the chance for robust gains in emerging markets. The global maker and marketer of toothpaste, soap and other cleaning products generates 40% more of it revenue in Latin America than in the United States. The New York company has 80% of the toothpaste market in Mexico and 70% in Brazil.
Because consumers tend to stick with trusted personal-care brands -- and pay more for them -- Colgate-Palmolive should have the ability to drive its fast-growing dividend even higher.
Weight Watchers International
The cash-generating power of Weight Watchers International (WTW) is truly remarkable. For every dollar it allocated to capital investment over the past five years, the New York company pulled out $19 from the business.
Even modest growth rates would bulge the coffers here. And with waistlines across the world expanding, the company's growth opportunity appears to be more than modest.
Brookfield Asset Management
Brookfield Asset Management (BAM) invests in real estate, but you'd hardly know it, given the performance of the stock, which is up 25% over the past 12 months.
That's a testament to the savvy of its management team, which owns some of the choicest real estate assets in the world's leading cities. The Toronto company is also invested in infrastructure and power assets, meaning this is a defensive stock par excellence.
The strength of specialty insurer Markel (MKL) is demonstrated by its long history of value creation. Its ability to grow book value year after year is a credit to Thomas Gayner, who has been the president of the Glen Allen, Va., company for nearly a year and its chief investment officer for about a decade.
But the company also has other long-tenured managers, as well as strong underwriting practices and solid relationships with key suppliers. The stock is priced at 1.3 times book value. It's not mortgage-the-house cheap, but great businesses rarely are.
With energy becoming such a strategic asset, Exxon Mobil (XOM) should be able to deliver solid returns despite its massive size. Wherever the future of energy lies, this company will be there.
The Houston company made a big bet on domestic natural gas with its $41 billion all-stock deal for XTO Energy in late 2009, and that deal is looking better as gas prices rise following the recent nuclear disaster in Japan.
Regulated returns, a nice payout, stability -- there's a lot to like about National Grid (NGG). This utility player has inflation-protected rates in the United Kingdom, where it earns 60% of its operating profit. Its toll-road-like assets provide an inflation hedge, too.
The London company's management has committed to 8% dividend jumps for the next couple of years.
Ride the gains
The way to wealth involves finding great businesses at reasonable prices, watching as management gets comfortable with the ebbs and flows of the business, buying in when the price is right and letting those gains ride.
These seven stocks fill the bill, and their solid and growing dividends give you even more reason to hang on to these stalwarts through the years.
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