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Is there anything worse than buying into a stock that was "sure" to go up a few percent and then holding on and watching the price erode for years? It's gut-wrenching. I've done it, too. I used to trade in and out of risky companies and refused to take a loss, hoping the stock would "come back" someday. Someday didn't usually arrive. But I've reformed: Now I buy for the long term and let the businesses work for me. Allow me to explain and then offer you seven stocks that make an airtight core that can create wealth forever.
A simple question
Are you really in the market for the long term? Here's a quick test: "I buy on the assumption that they could close the market the next day and not reopen it for five years." Would you agree or disagree? That's the buying strategy of superinvestor Warren Buffett. If you're prepared to buy and hold for five years, only the most well-positioned companies will do.
A long-term perspective changes everything: Think years into the future, if not decades. You'll need to rely on companies that have dominant franchises, absolutely indispensable products, and capable managers to drive returns. That positioning (and the confidence that comes with it) means you don't have to worry about next week because the future is going to rock for years to come. You can even take a stock's decline in stride and realize that it makes a great buying opportunity because the price really will come back and then soar even higher over the years.
These are stocks you can hold forever. And if the markets did close for years, well, these securities below (except one) pay solid and growing dividends, too. So let these guys do the work for you.
Stocks to hold forever
The stocks below make a fantastic core for any portfolio and are divided among various industries, so you get some diversification, both by sector and country. But two threads run through all: They provide products that are in constant demand regardless of the economic climate, and their businesses are resistant (though not immune) to technological innovation.
|McDonald's (NYSE: MCD )||3.3%||World's largest restaurant chain and still has only limited exposure to China and India, meaning lots of room for growth.|
|Colgate-Palmolive (NYSE: CL )||2.9%||Strong exposure to emerging markets with its "sticky" products. Dividend growth at 12.8% annually for the past half-decade.|
|Weight Watchers International (NYSE: WTW )||1.2%||Has 27% operating margins and pumps out 19 times as much cash as it invests into the business (five-year average).|
|Brookfield Asset Management (NYSE: BAM )||1.6%||One of the sharpest management teams on the globe has positioned this company with tons of strategic real estate and hard assets.|
|Markel (NYSE: MKL )||0%||22% growth in book value in the 20 years to 2008.|
|ExxonMobil (NYSE: XOM )||2.1%||America's largest energy company and long history of value creation. Always-in-demand assets offer a great hedge.|
|National Grid (NYSE: NGG )||6.8%||Locked-in returns from regulated utilities transmission assets. And did you see that dividend?|
Source: Yields from Capital IQ, a division of Standard & Poor's.
That's probably as diversified as seven stocks can get, adding some safety to the mix. 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.
The future looks bright
Everyone knows McDonald's as an American restaurant chain, but the company derives more sales from Europe than the States. And that's part of the huge opportunity here. McDonald's has only scratched the surface of what it can do in India and China. In the world's two largest nations, the Golden Arches has just more than 1,000 locations but is planning rapid growth in each. Add in hidden assets and a commitment to return all its free cash flow to shareholders, and you have a dividend play for a lifetime.
Another stereotypically American company, Colgate, provides the chance for robust gains in emerging markets. It sells 40% more in Latin America than in the U.S. already. In Mexico and Brazil, it already has 80% and 70% share in toothpaste, respectively. And consumers tend to stick with trusted personal-care brands and pay more for them. That will drive Colgate's already fast-growing dividend even higher.
Weight Watchers is something of an outlier in this group, but the asset-light, cash-generating power of this company is truly remarkable. For every dollar that it spent on capital investment in the past five years, it pulled out 19 more from the business on average. Even modest growth rates would bulge the coffers here. And with waistlines across the world expanding, the company has a huge opportunity.
Brookfield Asset Management invests in real estate, but you'd hardly know it given the stock price, which is re-approaching its all-time highs from late 2007. 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. It also invests in infrastructure and power assets, meaning this is a defensive stock par excellence.
Markel's strength is demonstrated by its long history of value creation. Its ability to grow book value year after year relies heavily on Chief Investment Officer Tom Gayner. But the company also has strong underwriting, solid relationships with key suppliers, and long-tenured managers. And it's priced at 1.3 times book value -- not mortgage-the-house cheap, but great businesses rarely are.
ExxonMobil: What more can you say about this behemoth? With energy becoming such a strategic asset in the future, Exxon should not be underestimated to deliver solid returns, despite its massive size. Wherever the future of energy lies, this company will be there.
Regulated returns, a nice payout, stability -- there's a lot to like about National Grid. This utility player has inflation-protected rates in the U.K., where it earns 60% of its operating profit, and its toll-road-like assets provide an inflation hedge, too. Management has committed to 8% dividend jumps for the next couple of years, but those are just a few of the reasons that it's an outstanding dividend stock that I'm buying.
Foolish bottom line
The way to wealth involves finding great businesses at reasonable prices, watching them to get comfortable with the ebbs and flows of their business, buying in when the price is right, and letting those gains ride. The seven stocks above can achieve that, and their solid and growing dividends give you even more reason to hang onto these stalwarts and continue to follow them through the years. You can get started in seconds by simply clicking on McDonald's, ExxonMobil, or National Grid to add them to your watchlist, or start a new watchlist and add any company you want. Not only will you get valuable updates on these companies, but you also get immediate access to a new special report, "Six Stocks to Watch From David and Tom Gardner." Click here to get started.