The Top Stocks of the Next 50 Years

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. Over the past decade, the index has returned 11.4% per year on average, which compares very favorably with the S&P 500's 8.2% over that time.

The magnificent six
The index contains 224 dividend-paying companies. I've put together a sample of six of them.

Company

Dividend Yield

3M (NYSE:MMM)

2.4%

Wrigley (NYSE:WWY)

2.1%

Paychex (NASDAQ:PAYX)

2.3%

Target (NYSE:TGT)

0.8%

Archer Daniels Midland (NYSE:ADM)

1.2%

Home Depot (NYSE:HD)

2.3%

Data from Yahoo! Finance.

Most of these companies need no introduction. Wrigley, a chewing gum giant, has just been a simply dominant company for the past two decades, earning shareholders great value on incredible cash generation. Archer Daniels Midland has been developing much of the nation's breadbasket for years and is now poised to reap profits off of an era of biofuels. Target and Home Depot are consumer stalwarts. Paychex is a rising star.

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 more than 9 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. Wrigley is an Income Investor recommendation. 3M, Paychex, and Home Depot are Inside Value recommendations. The Fool has a disclosure policy.


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