I'm a buy-and-hold investor, but that doesn't mean that I plan to hold every stock in my portfolio forever. On the other hand, I could see myself holding onto some of the stocks I own for decades to come. Here are three examples of stocks I never plan to sell, and why I feel that way about each one.
Monthly income that grows and grows
Each quarter, when retail real estate investment trust Realty Income (NYSE:O) reports its earnings, the results are nothing to get excited about. I've written again and again just how predictable Realty Income's results are. And I don't suspect that will change anytime soon.
However, that's exactly what makes Realty Income such a great stock for the long term. The company's business model is straightforward, and is designed to produce decades of steady, growing income.
In a nutshell, Realty Income acquires high-quality real estate, most of which is retail real estate occupied by a single tenant. The company then leases the property to the tenants on a "net lease" basis, meaning that the tenants pay such variable costs as property taxes, maintenance, and building insurance. These leases typically have initial terms of 15 years or more, with gradual rent increases built in, which not only minimizes turnover and vacancy risk, but also guarantees Realty Income a growing stream of rent payments.
Furthermore, most Realty Income's tenants are in businesses that are recession-resistant, competition-resistant, or both. For example, service-based businesses like gas stations are immune from e-commerce competitors. And dollar stores, a staple of Realty Income's portfolio, actually do better during tough economic times.
The proof is in the performance. Not only has Realty Income sustained market-beating returns (16.9% annualized average) for more than two decades, but the company has paid 558 monthly dividends in a row, and has increased the payout for 77 consecutive quarters, at an annualized rate of 4.7% since its 1994 NYSE listing. It's tough to imagine more desirable characteristics in a long-term stock holding.
A winning formula in good times and bad
Berkshire is well-known for its fantastic track record of performance -- since Buffett took over in 1964, the company's stock has produced a total return of more than 1,600,000% for its shareholders. Perhaps even more impressively, though, is the fact that the company's book value has increased in all but two years in more than half a century.
Warren Buffett completely understands that a stock can't just go up and up, and that Berkshire is no exception. In fact, Berkshire's stock price has ended the year in the red 11 times since Buffett took the reins. However, Buffett's goal is to increase the long-term earnings power of the company every year, which he and his team have done a fantastic job of.
Now, over the coming decades, Berkshire almost certainly will not deliver the same kind of performance. The company has simply gotten too big for those types of gains to be sustainable -- if Berkshire delivered the same performance over the next 50 years as it has over the last 50, the company's market cap would be more than 6,830 trillion dollars in 2067 -- simply not practical.
However, the company's business model of acquiring value-adding companies at fair prices, putting its cash to work in the stock market, and capitalizing on market weakness as it did during the financial crisis should allow Berkshire Hathaway to continue beating the market for decades to come.
America's most convenient bank
I'm a big fan of bank stocks, especially with the new republican administration in place, and I own several in my portfolio. However, Toronto-Dominion (NYSE:TD), or simply TD Bank, is the one I feel most confident about as a "forever" investment.
Simply put, the bank has been very good to its long-term investors so far, a statement that simply isn't true for most of the big U.S. banks. In fact, over the past decade (including the financial crisis), TD Bank has produced average total returns of 10.4%, handily beating the North American big-bank average of just 2.5%.
There are many other reasons to love TD Bank, which I discussed at length in a recent article. Just to name a few:
- Most other big banks are reducing their physical presence and emphasizing mobile and online banking services, but TD Bank still emphasizes face-to-face customer service that's simply better than most of its competition. TD Bank adopted the nickname "America's Most Convenient Bank" after its 2008 acquisition of Commerce Bank, and it lives up to that title with extended hours at night and on the weekends.
- TD Bank still has lots of room to grow, as it only has a presence in 15 states and D.C. However, the bank has a top-five market share in all its current major U.S. markets, which indicates that its more personable approach to banking has the potential to catch on in more places.
- The bank has one of the best credit ratings in banking, and was named the "safest bank in North America" by Global Finance magazine.
And, TD Bank has a fantastic dividend history. Not only has TD Bank paid dividends for 160 years, but the bank has a 11% annualized dividend growth rate over the past two decades.
What do I mean by "never"?
Now, when I say that I'm "never selling" these stocks, I can't necessarily guarantee that statement. Rather, what I mean is that if these companies keep doing what they're doing, I can't think of any reason I'd want to sell.
I subscribe to Warren Buffett's philosophy of "our favorite holding period is forever." What that means is that I buy stocks with forever in mind, but continuously monitor my positions. If something changes and the initial reasons I bought these stocks no longer applies, there could come a time when I sell.
The point is that these are three great shareholder-friendly companies, and as long as they remain that way, I plan to keep them as cornerstones of my portfolio.
Matthew Frankel owns shares of Berkshire Hathaway (B shares), Realty Income, and The Toronto-Dominion Bank. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.