Long-term investing is often talked about in terms of a few years in today's stock market. But at The Motley Fool, we love to find stocks we can hold for decades and make money on over the very, very long term.
We asked three of our contributors which stocks they want to own for the next 50 years, and SYSCO Corporation (SYY -0.47%), McDonald's (MCD 0.47%), and Verizon (VZ 2.85%) made the top of their lists.
Getting food where it needs to go
Reuben Gregg Brewer (SYSCO Corporation): SYSCO Corporation is the largest food distributor in the United States, serving restaurants, schools, and hospitals, among other customers. It also operates in Canada and Mexico, and recently bought a large European food distributor to expand its reach into a new market. Food distribution is a highly fragmented industry with ample opportunity for SYSCO to do "bolt-on" deals, which have been its bread and butter for decades.
The company has faced two notable problems, lately. The first was a failed attempt to buy US Foods, one of SYSCO's largest U.S. competitors. The hope was to achieve cost savings through that deal that would improve SYSCO's margins, which had been falling since 2010.
Weak margins in an already low-margin business is the second big problem. With the deal scuttled, however, SYSCO has renewed its focus on improving its own operations. And that's led to a notable operating-margin improvement over the last year.
SYY Operating Margin (TTM) data by YCharts.
SYSCO is clearly aware of the problem, is dealing with it, and achieving success. That's actually not so surprising from a company that's increased its dividend for 47 years and counting. The dividend-growth rate has slowed to about the rate of inflation over the last few years, but over the past decade, the annualized growth rate has been roughly twice that level. With a solid 2.5% yield, as well as a long history of successfully expanding via acquisition in a fragmented industry and rewarding investors along the way, SYSCO is the type of company you can own for a very long time.
The king of fast food
Tim Green (McDonald's): Restaurants, perhaps more than any other type of business, come and go. The industry is brutal, with no barrier to entry driving intense and unending competition. But McDonald's is no ordinary restaurant. The company has been around for decades, and its business model of having most of its restaurants run by franchisees is wildly profitable. McDonald's earned $4.7 billion of net income last year on $24.6 billion of revenue.
Image source: McDonald's.
In order to thrive for another 50 years, McDonald's will need to change with the times. McDonald's now offers delivery through the UberEATS service in some cities, and it plans to roll out mobile ordering and pickup to all of its U.S. restaurants by the end of the year. McDonald's is a laggard when it comes to digital strategy, but it's aiming to catch up quickly.
If I had to bet on any restaurant chain being around in 50 years, it would be McDonald's. The company is nearly recession-proof, with its focus on low prices driving sales in even the worst of times. Revenue dipped slightly in 2009 during the financial crisis, but it quickly recovered, and the bottom line was completely unaffected. McDonald's has thrived during its first 50 years, and it will likely do the same for decades to come.
Wireless telecommunications isn't going anywhere
Travis Hoium (Verizon): Besides food and housing, I think one thing that will be similar 50 years from now as it is today is data flowing through the air wirelessly, and then being disseminated to other people or things. Maybe it'll be phone calls, or maybe it'll be data from self-driving cars, or maybe personal drones will need to communicate with central command wirelessly. Whatever it is, I think Verizon is well positioned to be at the center of that wireless-communications future.
You can see below that Verizon is essentially tied with AT&T as the most profitable U.S. telecommunications company. This gives Verizon a powerful position in a market with very few players and the cash flow needed to upgrade its network, when necessary.
VZ Net Income (TTM) data by YCharts.
Over the next few years, we'll see Verizon's strong position playing out as it rolls out a 5G network, starting with an 11-city pilot by the end of this year. Meanwhile, Sprint and T-Mobile don't plan on rolling out 5G until 2019.
As more devices become connected and the Internet of Things grows, Verizon's network will become more and more valuable. Fifty years from now, this still will be a company that will likely be making tons of money for investors. And getting a 5% dividend yield in the meantime is a nice way to generate cash from a great long-term investment.
