It's certainly possible to record strong performance from short-term investments, but history has shown that most investors will be best served by finding great companies capable of delivering sustainable success and settling in for the long haul. With that in mind, here's why The Walt Disney Company (DIS +1.28%), Activision Blizzard (ATVI +0.00%), and International Business Machines (IBM +0.75%) are stocks I plan on owning for the ultra long term.
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Disney is a kingdom built to last
Technology can reasonably be expected to see a wide range of sweeping advancements that leave some of the market's current winners in the dust. Fluctuations in the price of oil or advances in alternative fuel sources could reshape the energy industry. The auto industry is already looking at big changes on the horizon -- with electric vehicles and autonomous driving raising questions about whether the industry's established players will continue to thrive. In short, the list of industries that could see massive changes in the coming decades is formidable.
However, a strong demand for entertainment content is one thing that's likely to remain constant. So long as that remains true, The Walt Disney Company stands a good chance of delivering strong performance. No other entertainment company has a more potent collection of entertainment properties or a better track record when it comes to creating new characters and stories that capture audiences' imaginations. Those advantages have been at the center of Disney's success, with hit new properties debuting on the big screen before going on to become powerful assets at the company's theme parks, networks, and consumer-products businesses.
The House of Mouse is facing some pressures from cord-cutting trends and declining ratings at its ESPN network affecting growth at its television segment, but it's making moves that should position it for success in the changing media landscape. In addition to securing box-office dominance, Disney's recently approved acquisition of key assets at Twenty-First Century Fox positions the company to be a titan in the streaming media space.
Disney trades at a reasonable 16 times this year's expected earnings, offers a 1.5% dividend yield, and it has roughly doubled its payout over the last five years. With the cost of distributing its current payout representing less than a quarter of the company's record $10.7 billion in free cash flow over the trailing-12-month period, shareholders can count on Disney to deliver dividend growth going forward.
Play the long game with Activision Blizzard
Video-game publisher Activision Blizzard has a fair bit in common with Disney, even though the software company is younger and at a different stage in its growth story. Video games have already surged to record levels of popularity, but the industry is still young compared to other forms of entertainment.
In many respects, gaming offers more potential for evolution than music, television, or film. The interactive nature of the medium tends to make gaming much more complex, dynamic, and involving. While a person might watch their favorite two-hour movie multiple times in a year, or marathon a popular television series, it's not unusual for gamers to sink hundreds of hours into their titles of choice. The most dedicated players sometimes spend thousands of hours in a single game. That superior level of engagement has made it possible for video-game publishers to generate consistent, high-margin revenue from content expansions and the sale of in-game items, and Activision Blizzard stands to benefit as gamers spend more on these categories and the market for interactive entertainment expands.
The company is responsible for blockbuster gaming franchises including Call of Duty, Overwatch, Candy Crush, and World of Warcraft. These properties create a solid base to work from, and Activision Blizzard's collection of studios and creative talent have proved more adept at introducing hit new intellectual properties than those of any other publisher in the industry.
The company has growth avenues outside of the traditional gaming space, as well. Activision is in the early stages of benefiting from what looks to be a sustained boom for the popularity of esports -- or competitive video games as a spectator sport. It's also making efforts to bridge its properties into the film-and-television space and expand its merchandizing business.
Activision Bilzzard stock even packs a growing returned-income component. Granted, its yield is paltry, at roughly 0.5%, but the company has increased its payout annually for eight years running and roughly doubled its payout over the stretch. The stock's main appeal is rooted in rapidly expanding earnings and the potential for continued growth (reflected by the fact that shares trade at roughly 28 times this year's expected earnings), but I generally think a growing returned-income component is a healthy sign. For investors taking a buy-to-hold approach to the gaming giant, there's a good chance that shares purchased today will actually pack substantial yield down the road.
IBM stock offers more than a great dividend
Big Blue's declining hardware business has caused the company to be viewed as something of a lumbering dinosaur, but the the company actually has an impressive legacy of innovation and transformation since its founding in 1911. Past performance should never be the sole basis for an investment thesis, but there's something to be said for that impressive pedigree, and IBM appears to be making real progress on reorienting for tomorrow's tech landscape. The entrenched position the company has built in enterprise tech puts it on good footing to reap the fruits of its most recent reinvention efforts and enrich its shareholders.
There's room for Big Blue to see substantial capital appreciation, with shares trading at just 10.5 this year's expected earnings. Recent performances for the company's cloud, security, and analytics businesses suggest that the business is on track to return to sustainable sales and earnings growth. Big Blue's revenue has climbed in two of its last three quarters (and was flat in the other quarter) as growth for its strategic imperatives segment offset declines for its legacy hardware and services segments. Sales for the strategic imperatives segment climbed 12% year over year on a currency-adjusted basis in the company's most recent quarter to account for just under 50% of sales, and there's still plenty of room for long-term growth in the core strategic-imperatives categories.
IBM also has a fantastic returned-income profile. With a roughly 4.3% yield, the stock's dividend offering is a standout in the tech sector and comes in well above the 2.9% yield offered by a 10-year Treasury bond and the S&P 500 average yield of 1.8%. IBM shareholders can also reasonably expect that the company's payout will continue to expand. It has raised its dividend on an annual basis for 23 years straight and has paid a dividend since 1916.
With a chunky returned-income component, a non-prohibitive valuation, and momentum for its growth businesses allowing the company to better leverage its strong foundation in enterprise IT, I think IBM is worth owning for the ultra long term.
