Buy-and-hold investing is the best way to predictably generate wealth over the long term. And we're talking about holding your investments for years, not months weeks, or days.
But finding high-quality stocks that stand the test of time is easier said than done. So to that end, we asked three top Motley Fool investors to each pick a stock that they believe investors can safely own until the year 2030 -- more than a decade from now.
Read on to learn why they chose Anheuser-Busch InBev (BUD 0.96%), Johnson & Johnson (JNJ 0.67%), and Royal Dutch Shell (RDS.A) (RDS.B).
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Toasting to world domination
Steve Symington (Anheuser-Busch InBev): With operations in over 50 countries and a portfolio of hundreds of beers, including seven of the world's most popular brands, Anheuser-Busch InBev is an industry stalwart that won't be going anywhere anytime soon. Heck, the company generated revenue of more than $14.7 billion last quarter alone, which translated to a nearly 58% increase in normalized profit to shareholders, to nearly $2.6 billion. Speaking to the merits of diversification, it achieved this growth despite recent weakness in the U.S. beer market, which was offset by higher international sales of A-B InBev's three "global brands" in Budweiser, Stella Artois, and Corona.
For all that relative strength, shareholders in the brewing juggernaut can partly thank its $100 billion megamerger with SAB Miller in late 2016. But we should also keep in mind the fruits of that merger are still continuing to flow toward AB InBev's bottom line. Though the company has already captured more than $1.75 billion in pre-tax synergies (cost savings) from the combination, it's targeting a total of $3.2 billion in savings by the late 2020.
Thanks to a modest pullback following its latest results in October, AB InBev stock also offers a hefty dividend yielding just over 5% annually at today's prices. For investors who buy and hold as it solidifies its world leadership in the brewing market, that's why I think AB InBev is a perfect long-term portfolio candidate.
A diversified healthcare giant
George Budwell (Johnson & Johnson): Honestly, the healthcare sector isn't a great place to look for stocks that can be held for a decade or more. The ever-changing regulatory landscape, rapid pace of innovation, and risky nature of clinical trials, after all, makes it exceptionally difficult to predict where companies will be even a year from now. Diversified healthcare giant Johnson & Johnson, however, is perhaps the only exception to this rule.
J&J is a great long-term buy for three key reasons. First off, the company has a rock-solid foundation with its consumer healthcare segment that sells top brands in baby care, oral care, beauty products, and OTC medicines. If everything else fails, J&J can always count on people who need baby powder and Band-Aids, after all.
Second, J&J has also consistently been a leader in the field of biopharmaceutical innovation that's helped it stay one step ahead of its competitors, and the patent cliff. Despite losing exclusivity of its top-selling anti-inflammatory medicine Remicade and experiencing a steep drop in sales for its hepatitis C medicine, Olysio, J&J's pharmaceutical segment still posted a whopping 15.4% rise in sales during the third quarter of 2017. That double-digit increase is directly attributable to the launch of new growth products like the multiple myeloma medicine Darzalex, and the parade of successful label expansions for the blood cancer drug Imbruvica.
Last but not least, J&J has one of the best dividend programs in the healthcare sector. Supporting this claim, J&J has raised its dividend for 55 consecutive years, and its trailing payout ratio of 57% is well below average for its peer group. So while J&J's current yield of 2.29% is slightly below that of most other big pharma stocks, the company's dividend is arguably among the safest and most reliable sources of passive income in healthcare.
In sum, J&J is a solid long-term buy because of its core consumer healthcare unit, best-in-class pharmaceutical research division, and top dividend program, that should act in concert to deliver sustainable returns on capital for years to come.
Planning for the future
John Bromels (Royal Dutch Shell): If you're looking for a stock that you can feel safe buying now and forgetting about until 2030, check out Royal Dutch Shell. Its stellar dividend yield -- currently about 5.4% -- along with its solid fundamentals and an eye for the future offers the perfect combination of security and income.
With the price of oil on the rise, Shell's fortunes are continually improving. The company implemented strict cost-cutting measures during the thick of the oil price downturn. Those measures are now paying off, turning the company's most recent third quarter -- during which Brent crude prices averaged about $52 a barrel -- into a bonanza, with profits up 47% year over year, to $4.1 billion. Brent crude prices have stayed above $60 a barrel since November and even briefly edged above $70 in mid-January, so the company's short-term outlook is fantastic.
There's also good reason to be bullish on Shell's long-term prospects. Shell has been divesting underperforming assets, with a goal of dropping some $30 billion in assets by the end of 2018. Meanwhile, it has expanded its liquefied natural gas business, a market it expects to grow even faster than oil in coming years. That should help keep investors' money safe even if the oil market softens five or 10 years down the road. That makes it a great "buy and hold" stock.
The bottom line
There's no way to guarantee that these three companies will continue to survive and thrive for the next 12 years. But given their positions of industry leadership, solid financial positions, and long-term-oriented businesses, we think there's a great chance that they will do just that for patient investors willing to buy and hold their shares.
