Nothing in life is certain, as the saying by Benjamin Franklin goes, except death and taxes. So, no one should be certain they'll hold a stock forever ... but long-term investors should probably go into every trade with that mindset.
To stay in my portfolio, a company needs to keep living up to my expectations, with some leeway provided for temporary adversity. Three stocks that I own today that I truly hope to own until the day I die are Hormel Foods (NYSE:HRL), Procter & Gamble (NYSE:PG), and W.P. Carey (NYSE:WPC). Here's why I like each one and what I expect from them.
1. Hormel Foods
I'll admit it, I like chorizo-flavored SPAM, a variant of one of Hormel's most iconic brands, which kind of gets right to the reason I like the food manufacturer so much. First, it owns 40 brands that are No. 1 or No. 2 in their categories. Second, it's an active brand manager with a heavy focus on innovation. That gets even better when you add in modest leverage (the debt to equity ratio is just 0.04) and a long history of rewarding investors via increasing dividends (53 years straight of dividend increases with a 15% annualized rate of growth over the past decade and a reasonable 45% payout ratio).
But Hormel isn't perfect. For example, it bought a company that made protein sports drinks to expand its focus into a new area. It never really gained traction, and Hormel sold the division to PepsiCo earlier this year. At the same time, though, it has been expanding its reach in other ways, acquiring meat specialist Columbus, introducing new products related to older brands like Skippy, and building new brands from the ground up. A recent example of this is its just-launched plant-based meat alternative Happy Little Plants. I'm OK with a misstep or two as long as Hormel keeps pushing forward with the rest of its business. In fact, I like that it jettisoned a brand that wasn't working for it so it could spend time on more promising opportunities.
Essentially, I want to own Hormel as long as it remains a great brand manager. That said, what would get me worried is a prolonged string of misses coupled with a notable rise in leverage. That would indicate to me that management has really lost its way and that a dividend cut, almost unthinkable today, could become a real threat. Today, a dividend yield around 2% (toward the high end of the company's historical range) suggests it's worth a deep dive.
2. Procter & Gamble
For many of the same reasons, I also own Procter & Gamble, a giant in the branded consumer products space. Like Hormel, P&G actively manages its brands (it recently sold off a slew of underperforming nameplates) and focuses on innovation. Those are key requirements for this name to stay in my portfolio. Once again, I was attracted by an impressive dividend streak -- 63 years of annual hikes and counting -- and modest leverage (its 0.45 debt to equity ratio is higher than Hormel's but is hardly the sign of a risky balance sheet).
What's particularly interesting here is that P&G is finally starting to see some solid results after a difficult stretch. That rough patch was when it trimmed its brand count so it could refocus on its core. Notably, the company that bought its non-core makeup brands has been struggling to make the acquisition work out -- it looks like P&G made the right call. There is still a lot of work to be done, particularly in the razor business. However, P&G hasn't given up on innovation, buying smaller start-ups that it can use to better meet emerging customer needs and desires, including ethnic and "healthy" brands. And it is creating major extensions of its own brands, such as premium diapers. Not every idea will work, of course, but P&G's long history of successfully managing a branded portfolio of consumer products is worth owning.
That said, I bought P&G at a time when investors had given up on the stock. I wouldn't be a buyer at recent prices, since the 2.4% yield is the lowest it has been in a decade (though, to be fair, it is still higher than the yield offered by an S&P 500 Index fund). But I'm certainly not selling the stock until management proves it has lost its way, either by over-leveraging the business or too many big missteps within its core brand portfolio (which includes iconic names like Bounty, Pampers, Tide, and Crest).
3. W.P. Carey
Switching gears, the last name on this list is W.P. Carey. This real estate investment trust (REIT) owns net lease properties where the lessee is responsible for most of the costs of the property it occupies. It's a fairly low-risk way for Carey to own a property, since, to simplify things a great deal, it just has to sit back and collect rent. My big attraction to Carey has always been a combination of diversification and dividend history (it has hiked its dividend annually for 22 years), but I only pulled the trigger on the stock a few years ago.
The company was at one point structured as a partnership, which didn't make much sense to me, so I admired it from afar. After converting to a REIT in 2012, I started looking again but was put off by management's thoughts on further restructuring the company by breaking it into three parts: an asset management operation (creating and managing non-traded REITs), a domestic REIT (64% of rents), and a foreign REIT (36%, largely Europe). I hated that idea, which was pushed hard by Wall Street analysts.
But there was a contentious fight at the company, with the board finally ousting the CEO who was spearheading the breakup. The final choice seemed reasonable: Carey started to wind down the asset management business and maintained its uniquely global portfolio. Now add that the REIT's properties are not only globally diversified, but span the industrial (23% of rent), warehouse (11%), office (25%), retail (18%), and self-storage (4%) sectors, among others. Simply put, Carey's diversification sets it far apart from its peers.
Carey's stock has had a good run in 2019, so I wouldn't rush to buy it today. But I would keep it on the wish list, looking for a yield of around 6%. That said, I'd have to consider jettisoning Carey if gave up its focus on country and property-type diversification. Not only do I like the general benefits of diversification, but Carey prefers to invest opportunistically (read that as it likes good deals). A broad portfolio gives it a chance to do that across various market environments better than a focused portfolio ever would. W.P. Carey without diversification wouldn't be worth owning.
No specific sell targets
One thing you'll probably notice is that I don't have hard and fast targets for selling Hormel, P&G, or W.P. Carey. That would go against the idea of wanting to own them forever. In fact, every company goes through good and bad times. Selling whenever a company hits a temporary rough patch isn't how I want to invest (though such periods can be great buying opportunities for value-oriented investors like myself). Which is why my sell triggers involve what I believe would amount to a radical shift in the core approach to each company's business. Until that happens, I'm willing to give management plenty of leeway. My experience has shown I'll be rewarded over time if I do.