Is it possible to determine the top-performing stocks of the next half-century? Before looking into the future, we need to consider the past. So let's start at the very beginning (as Julie Andrews might say).
Fishing in a well-stocked pond
Those familiar with the work of Wharton professor Jeremy Siegel know that dividend-paying stocks such as Altria have been the best performers since the beginning of the S&P 500 back in 1957.
The key to their amazing returns was reinvested dividends. We've covered this theme in numerous articles here at the Fool, but that insight is worth emphasizing. If we are searching for top stocks for a time frame of 50 years, we need to look at dividend-paying stocks.
One place to begin our search might be the Mergent Dividend Achievers Select Index, whose constituents are U.S.-based companies that have all increased their annual dividend payments for 10 or more consecutive years. Since 1997, the index has returned 10.8% per year on average, which compares very favorably with the S&P 500's 7.6% over that time.
The magnificent six
The index contains 225 dividend-paying companies. I've put together a sample of six of them.
|
Company |
Dividend Yield |
|---|---|
|
PepsiCo |
1.9% |
|
Applebee's |
0.9% |
|
Chevron |
2.9% |
|
Rohm & Haas |
2.5% |
|
SLM |
2.4% |
|
Walgreen |
0.7% |
Most of these companies need no introduction. PepsiCo, some may know, was one of the best large-cap performers of the 20th century, while Chevron has delivered record profits over the past few years. Applebee's and Walgreen are two of the most recognizable brand names in America.
Will any of these be among the top stocks of the next 50 years? It's tough to say for sure, though I do believe one or two will make the list.
Looking ahead
So, to recap: If history is any indication, the top stocks of the next 50 years will be businesses that have stable, growing dividends; reasonable valuations (part of the reason for Altria's outperformance, Siegel says, is that the constant threat of litigation meant it was always undervalued); and good managers.
Even if you find a top stock of the next 50 years, the only way you'll benefit from those potential gains is if you hold for the long term and let the power of reinvested dividends work in your favor.
James Early, advisor of our Motley Fool Income Investor newsletter service, scours the markets for the best performers of the next 10, 20, and yes, 50 years. Income Investor recommendations boast an average 4.1% dividend yield and, collectively, those picks are beating the market at large by 10 percentage points. You can see all of his picks and research for free with a no-obligation 30-day trial. Click here to learn more about his favorite dividend-paying stocks.
This article was originally published on Jan. 26, 2007. It has been updated.
John Reeves does not own shares of any company mentioned. He hopes he will be able to see how well these companies perform 50 years from now. The Fool has a disclosure policy.
