A smart investor doesn't really have to do much to get rich. The trick lies in choosing the right kind of stocks that require no babysitting but keep filling your coffers while you stand back. That requires investing in rock-solid businesses with moats and financial fortitude that can withstand the test of time and continue to grow, year after year.
Finding such stocks isn't easy, though; so to help you start, I analyzed a basket of companies and found three incredible ones -- Waste Management (WM -0.20%), 3M (MMM -1.39%), and Mastercard (MA -1.13%) -- that look poised to grow and need absolutely no babysitting unless their industry dynamics change in an entirely unanticipated manner that may require revisiting your investment decisions. Here's why.
Making money from trash
A company providing an essential service like hauling, disposing, and recycling waste is unlikely to go out of business unless we stop producing waste. As for competition, it's no cakewalk setting up and operating landfills and recycling facilities, both of which require huge capital investments and regulatory commitments. More often than not, haulers dispose waste at others' landfills for a tipping fee.
Image source: Getty Images.
It is this essential nature of its business and high barriers to entry that make Waste Management such a great stock to own, more so because Waste Management is the leader in the industry today with nearly 250 landfill sites and more than 130 landfill gas-to-energy conversion facilities that cater to the needs of more than 21 million customers across homes and diverse industries in the U.S. and Canada. One of Waste Management's biggest competitive advantages is that it deals in end-to-end waste management, right from collection to disposal and recycling. Simply put, when you own Waste Management, you're betting on a leader in a defensive industry. Such a stock typically needs no babysitting.
Don't expect Waste Management to grow like gangbusters, but what you can expect is security and stability of income and dividends. A recession-proof business has allowed Waste Management to generate consistent cash flows over the years and increase its dividends for 14 consecutive years. With the company paying out less than 60% of net income and free cash flow in dividends currently, there's enough room for growth. Waste Management's dividend yield might not be the best at 2.34%, but you can see below how the stock's total returns have trampled the S&P 500 total returns in the past five years.
MMM Total Return Price data by YCharts.
As you can also see, returns from 3M and Mastercard have been no less impressive, and I explain below why.
Ever wonder how profitable Scotch Tape's manufacturer is?
It's nothing short of fascinating how 3M has grown from a manufacturer of low-key products like Post-it Notes and Scotch Tape to a megaconglomerate with 60,000 products, 100,000 patents, and sales topping $30 billion last year. 3M's profits and cash flows have grown steadily over the years. Guess 3M's average return on equity for the past decade? It's a stunning 32%: There's no better proof of management's efficiency.
MMM Net Income (TTM) data by YCharts.
The end result of 3M's diversity and prudent management is that shareholders have not only made big capital gains but have also enjoyed uninterrupted and growing dividends over the years.
In fact, a record of 59 years of consecutive dividend increases makes 3M an extraordinary dividend stock, and there appears to be no stopping the company. With management targeting earnings-per-share growth of 8%-11% through 2020, you can rest assured 3M will continue to make you money for years to come.
You swipe, Mastercard mints
If you're looking for a solid, long-term play in a disruptive industry, look no further than payment processor behemoth Mastercard.
Every time someone somewhere swipes a Mastercard credit or debit card, the company earns a small fee. There's growing evidence that the world is rapidly adopting plastic money -- Mastercard's switched transactions, or simply its transaction count, jumped 16% in 2016. If you're wondering about Mastercard's growth potential, consider that nearly 85% -- yes, you read that right -- of all global transactions are still driven by cash and checks.
Image source: Getty Images.
It's not surprising, then, that management is confident about growing its EPS mid-teens through 2018. Growth in digital payments should be the biggest driver, of course, but the company's value-added services and foray into other areas of electronic payments via acquisitions like VocaLink should provide further impetus. Mastercard proved its mettle by growing revenue and EPS by 11% and 10%, respectively, in 2016 despite major headwinds like Brexit and a stronger dollar. With fast-developing countries like India now advocating plastic money like never before, Mastercard is poised for solid growth, reaping you rich rewards along the way.
