5 Stocks for the Next Three Decades

Wall Street likes to focus on one-year price targets. I don't have much use for that.

In part, that's just because I'm lazy. When I invest in a company, I like to get to know it, and I sink a good amount of time reading SEC filings, examining the financials, and figuring out what makes the business tick. I don't relish the idea of starting this process from scratch at the beginning of every year.

A five- or 10-year price target is more my speed. Heck, stretching that out to 30 years sounds like a lazy investor's paradise. But is that even possible? Can an investor really buy any stock with an eye towards holding it for three decades?

Three-decade dynamos
Assuming we want to figure out what stocks are worth holding for the next 30 years, a good starting point might be a look back at the last 30 years. Here are the top 10 performing stocks -- based on dividend-adjusted returns -- over the past three decades.

Company

Dividend-Adjusted Returns, 1/1/1981 to 1/1/2011

Annualized Return

Leucadia National (NYSE: LUK  ) 60,628% 23.8%
AFLAC 51,845% 23.2%
Gap 48,929% 22.9%
Hasbro 42,333% 22.3%
Raven Industries 38,440% 22%
Wal-Mart Stores 29,028% 20.8%
Valspar 27,174% 20.6%
Altria (NYSE: MO  ) 25,293% 20.3%
Family Dollar 21,481% 19.6%
Vornado Realty 21,446% 19.6%

Source: Capital IQ, a Standard & Poor's company.

The next 30-year winners
A look back like the table above is only really useful if we can pull some lessons from the past winners to help us find future winners. Here are three that I think we easily take away from this group:

  1. They serve basic markets.
  2. They paid dividends.
  3. They required investor patience.

There could definitely be an argument for adding "small size" to the list, but I don't think we should be too quick to dismiss larger companies. Altria was a large company in 1981, and Wal-Mart was no small fry. Also, many of the very largest companies have performed admirably over this stretch.

  • Exxon Mobil returned 4,993%, or 14% per year
  • Merck returned 3,725%, or 12.9% per year
  • Johnson & Johnson returned 6,149%, or 14.4% per year

On the basis of profits, in 1981 Exxon held the No. 1 spot on the Fortune 500, while Merck and J&J were 40 and 44, respectively.

Three steps to long-term excellence
Serving basic markets is important, because if we're looking at a company that operates in too small of a niche, there's a much higher likelihood that it will hit a ceiling as it tries to grow.

Wal-Mart and Family Dollar sell consumer basics at rock-bottom prices. Hasbro sells a wide variety of toys and games. Vornado owns prime commercial real estate. These are very basic businesses whose goods and services were in demand 30 years ago, and 30 years before that, and remain in demand today.

All of the companies in the table above also enhanced shareholder returns through dividends. The most obvious is Altria, whose non-dividend-adjusted return of 1,266% looks very meager compared to its dividend-adjusted gains.

But while the dividends do help enhance returns, they also typically say some very positive things about a company. Dividends show that companies have a stable, cash-generating business, and that management is making sure that investors benefit from the company's success.

Finally, a glance at the long-term charts for the stocks above reveals that over the past three decades, there were ups, there were downs, and there were periods where not a whole lot happened. But despite the intervening squiggles, each company posted undeniably positive end results -- at least for the investors who stuck around.

Five 30-year picks
We'll want to find companies that will still be going strong even after 30 years. So while valuations aren't meaningless, getting a rock-bottom price shouldn't be our No. 1 concern.

To begin winnowing down the massive field of available stocks, I looked for stocks that pay a dividend of at least 1%, and have a trailing price-to-earnings ratio of less than 20. From there, I simply looked for businesses that I could easily see still kicking butt in 2041.

Company

Products / Services

Dividend Yield

Price-to-Earnings Ratio

Procter & Gamble (NYSE: PG  ) Gillette, Tide, Crest, Old Spice, Pampers, and many more 3.3% 17.2
PepsiCo (NYSE: PEP  ) Pepsi, Tropicana, Frito-Lay, Gatorade, and many more 2.9% 17.2
Medtronic (NYSE: MDT  ) Wide variety of medical devices 2.2% 13.6
Public Service Enterprise Group (NYSE: PEG  ) Diversified utility 4.4% 10.1
TJX (NYSE: TJX  ) T.J. Maxx, Marshalls, HomeGoods 1.5% 15.9

Source: Capital IQ, a Standard & Poor's company.

With these five companies, I believe we have the first two points of my list covered: They all serve basic markets, and each pays a dividend. As to the final point, investor patience -- well, that's up to you. In the era of 24-hour financial news and one-year price targets, thinking about buying a company to hold for 30 years may seem pretty Foolish. But that's usually a good thing.

Of course, if you're considering making that kind of commitment to a stock, you probably want to get to know it pretty well beforehand. You can do so by adding prospects to your Foolish watchlist. Click the "+" signs above to add any of the companies listed, or start a brand new list.

Johnson & Johnson and Wal-Mart Stores are Motley Fool Inside Value selections. AFLAC, Hasbro, and Leucadia National are Motley Fool Stock Advisor picks. Wal-Mart Stores is a Motley Fool Global Gains choice. Hasbro, Johnson & Johnson, PepsiCo, Procter & Gamble, and Wal-Mart Stores are Motley Fool Income Investor selections. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. Motley Fool Options has recommended a diagonal call position on PepsiCo.Motley Fool Options has recommended a diagonal call position on Wal-Mart Stores. The Fool owns shares of AFLAC, Altria Group, Exxon Mobil, Johnson & Johnson, Medtronic, PepsiCo, and Wal-Mart Stores. Alpha Newsletter Account, LLC owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Johnson & Johnson, Medtronic, and Wal-Mart, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (9) | Recommend This Article (80)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 27, 2011, at 5:23 PM, David369 wrote:

    Who would have thought that toys and insurance would have done that well! Dang, I could have been rich by now...

  • Report this Comment On April 27, 2011, at 7:35 PM, pastreet wrote:

    There are definitely some great picks here, but these aren't the only stocks that meet the criteria of long term investments. There are many factors to consider when investing for the long run, especially in dividend paying equities (which allow you to take advantage of DRIP investing).

    Pat

    www.compoundingreturns.com

  • Report this Comment On April 27, 2011, at 8:56 PM, TMFKopp wrote:

    @pastreet

    You're absolutely right. I like these, but there are a lot of other options that could be potential winners over longer time frames.

    Matt

  • Report this Comment On April 27, 2011, at 10:17 PM, Usnzth wrote:

    Wow Guys,

    Articles like these are meant to get your mental spark plugs firing, not give you a list of the 37 stocks that you should go out and buy right now.

    Find your own. That's why we have screeners!

    Usnzth

  • Report this Comment On April 27, 2011, at 10:32 PM, thejatrain wrote:

    If dividends are so crucial, maybe MF should track them in my portfolio? I can't imagine this calls for a herculean feat of IT magic...

  • Report this Comment On April 28, 2011, at 4:32 AM, tfoth65 wrote:

    I dont see T.J Maxx or Marshalls being around in 10 years, let alone 30 years.

  • Report this Comment On April 28, 2011, at 8:38 AM, plange01 wrote:

    the stock market has become controlled by large hedge funds and is a speculators market .the only thing to look for in stocks is what they are driving up and time, profits or anything else means little at best...

  • Report this Comment On April 28, 2011, at 12:48 PM, David369 wrote:

    thejatrain

    Yeah, that would be nice wouldn't it. How do the "income investors" track their income on the watch list?

  • Report this Comment On April 29, 2011, at 1:30 PM, whitll wrote:

    what is happening with ARRS? You gave it this huge build-up and then it went in the tank.

    Whitll

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