Investing in stocks has proven time and again to be one of the best ways for you to grow your wealth. Better yet, the simplest approach -- buying the best companies at reasonable prices and then holding onto them as long as possible -- has also shown to be one of the most effective. To paraphrase Warren Buffett, time is the friend of great companies, which will increase earnings and steadily build value for its owners -- the shareholder.
To help you get started on your search for the best companies to buy and hold, we reached out to three of our contributing investors with long-term investing chops and asked them for their best ideas. The companies they came up with already have over 300 years of success behind them but are still going strong: American Express Company (AXP 1.12%), McCormick & Company, Incorporated (MKC -0.29%), and Walt Disney Co (DIS -0.06%).
Keep reading below to learn what makes these three stalwarts still worth buying today and holding for decades to come.
This venerated brand has decades of growth ahead of it
Jason Hall (American Express): Depending on when you bought, the past few years have either been "meh" or very rewarding for AmEx investors. It took some time for the company to work through the impact of ending its long-standing deal with Costco and return to growth, but it's looking more and more like the high-class charge card provider and business lending leader has recovered, as its recent earnings growth shows.
Looking at the long term, the company's prospects are solid. The growth of electronic payments on a global basis is creating a significant opportunity for every major player in cashless transactions. Second, the world's middle class is growing at a high rate, and that means more of the consumers who will benefit from -- and desire -- a premium card from American Express.
Sure, there are some near-term challenges, including one that will keep the company from repurchasing shares in 2018 and the need for management to continue its solid track record of keeping loan losses to a minimum -- particularly during weak economic periods. But with a history of being a millionaire-maker stock already, combined with strong prospects for growth, American Express is an ideal stock to buy and own for -- at least -- the next 20 years. That's certainly my plan.
This business is built to last
Brian Feroldi (McCormick): Spice and flavoring giant McCormick has been in business for more than 100 years, so it knows a thing or two about thriving over the long term.
Consumers know this company best for its dominant foothold in our local supermarket's spice aisle. However, McCormick also boasts a large commercial division that provides signature flavoring products for countless foods sold by chain restaurants and packaged foods companies. The balance between these two businesses helps the company to make a profit whether consumers decide to dine in or out, which is an appealing prospect for investors.
While McCormick's spice and flavoring businesses are very stable, this isn't exactly a high-growth industry. However, McCormick has been on a bit of an acquisition binge as of late that promises to get the company's growth engine humming. Last year the company shelled out $4.2 billion to acquire Reckitt Benckiser's food division, which added a number of new products to McCormick's empire. When combined with cost savings initiatives and margin improvement, Wall Street is projecting double-digit profit growth over the next five years. That's pretty strong for a mature business.
Meanwhile, income investors will appreciate that McCormick offers a dividend yield of 2% and boasts a long history of bumping its payout. In fact, the company has raised its dividend for 32 years in a row, including an 11% hike just a few weeks ago. Even with all of those raises, the company's payout ratio is just 55%, so there's plenty of room left for future hikes.
McCormick isn't the most exciting stock in the world but it does offer investors a time-tested business model, moderate growth prospects, and a steadily growing dividend. That's why I think this is a great choice for investors who think with a multi-decade time horizon.
The House of Mouse that Walt built
Dan Caplinger (Walt Disney): Many people like to look at recent winners in picking stocks for the future, and through that lens, Disney doesn't stand up very well. The entertainment giant struggled through 2017, just barely posting gains in a year in which the broader market was up more than 20%.
Most investors who are nervous about Disney's prospects focus on the difficulties that the company has had with its ESPN sports television network. The trend toward cord-cutting has posed a threat to cable television broadly, and ESPN's dominance of cable puts it in the crosshairs of this adverse trend. Yet Disney has foreseen this and has taken steps to ramp up its own direct distribution channels, eschewing deeper partnerships with potential competitors in favor of holding onto its unmatched stable of in-house content. Its latest move to acquire a substantial part of the operations of 21st-Century Fox (FOX) (FOXA) should go even further in that direction, given Fox's stake in streaming service Hulu.
Meanwhile, Disney's content machine keeps rolling. Cash-cow franchises from Marvel, Pixar, and Lucasfilm are paying dependable dividends, and Disney's other units contribute their fair share to the overall profit pie. Looking out 20 years, Disney has all the pieces in place to stay a leader in the entertainment space.