As Warren Buffett once said, his "favorite holding period is forever." The wonder of compounding, after all, takes time, which is why investors should aim to hold stocks for the long haul. To that end, three that we think are great "forever" holdings are Ford (NYSE:F), Store Capital (NYSE:STOR), and Brookfield Renewable Partners (NYSE:BEP). Not only are they excellent businesses, they also pay high-yielding dividends that appear sustainable for the foreseeable future.
Have you looked at Ford stock lately?
Rich Smith (Ford): Is a 5% dividend high enough for you? Because if it is, then I think I've found just the stock -- one that's stood the test of time and survived for more than a century when its rivals have gone down in flames: Ford.
You probably know Ford Motor Company as a carmaker. You may also know it as a value stock, currently costing less than 5.5 times trailing earnings. What you might not know is that Ford is one of the richest dividend payers on the market today that doesn't have some sort of "REIT" or "L.P." or other abominable acronyms as part of its name.
Fact is, with a dividend yield of 5.7%, the stock pays out nearly three times the dividend yield of the average S&P 500 stock. And with less than 33% of its annual profit devoted to maintaining its dividend, the company can both easily afford to keep paying it and probably even increase it over time.
Ford may not be the fastest profit grower on the block. Analysts who follow it only expect it to grow profits by about 3% annually over the next five years. Still, seeing as we're near the peak of the automotive cycle right now, the fact that analysts see Ford growing at all, and not just watching its earnings slide down into a post-cycle trough, is pretty encouraging.
If Ford can prove those analysts right and pull off even modest earnings growth over the next few years, I see no reason why it shouldn't remain a profitable buy-and-hold investment for the foreseeable future.
A rock-solid REIT
Brian Feroldi (Store Capital): The threat of rising interest rates has pulled down the valuations of many real estate investment trusts (REITs), including strong operators like Store Capital. That's had the happy result of its dividend yield being pushed above 5%, which qualifies it as a high-yield stock that can be safely owned for decades to come in my book.
The reason I think Store is a good long-term investment rests on the company's bulletproof business model. Store buys or builds freestanding retail structures and then leases them out to tenants under long-term, triple-net lease agreements. These contracts require the tenants to pay for all of the buildings' maintenance costs (taxes, insurance, utilities, landscaping, etc.) while Store simply acts as the landlord.
But how has Store protected itself from the recent wave of retailer bankruptcies? In a few ways:
- The vast majority of Store's tenants are service-focused retailers (think restaurants, movie theaters, health clubs, and pet care facilities). This minimizes the threat posed by the continued rise of e-commerce retail sales.
- Tenants are required to sign long-term leases in order to minimize turnover.
- Potential tenants are vetted thoroughly for their financial health before Store signs the lease. Most are also required to share financial data on a regular basis to prove that they are always in strong financial shape.
When combined, these factors have kept its occupancy rate above 99% for many years. Store's financials are therefore in great shape, making its dividend payment easily affordable.
Looking ahead, I think Store Capital can continue to successfully operate this business. It's also not hard to understand why Buffett himself recently decided to become one of its largest shareholders.
The energy source that has stood the test of time
Matt DiLallo (Brookfield Renewable Partners): While the energy landscape has changed dramatically over the past 100 years, one of the few constants has been hydropower. While it can't generate power on the same scale as other sources, what it does produce is far superior because it comes with zero emissions, no fuel costs, and no intermittency issues. Instead, hydropower plants provide a steady supply of low-cost, clean power, and should be around for decades to come.
These factors make leading hydro operator Brookfield Renewable Partners a great stock for the long term. Another is that it generates gobs of free cash flow from its hydro portfolio, converting a tech-like 48% of its revenue into cash. Furthermore, the company has locked up 92% of the power it produces under contracts with an average remaining term of 15 years, which should provide a very predictable cash flow stream to support its 6.5% yield.
That said, what puts Brookfield Renewable over the top as an ideal high-yield stock to hold for a long time is that the company expects to increase that payout at a 5% to 9% annual growth rate. Several factors drive that view, including its ability to continue building new clean power assets. In addition, it has done an excellent job of acquiring both plants and platforms, such as last year's purchase of a stake in wind and solar company TerraForm Power (NASDAQ:TERP). That combination of a steadily growing high-yield dividend backed by a technology that's not going anywhere makes Brookfield Renewable an excellent renewable energy stock to buy if you're planning to hold forever.
Brian Feroldi has no position in any of the stocks mentioned. Matthew DiLallo owns shares of Brookfield Renewable Energy Partners, Ford, and TerraForm Power. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.