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3 Stocks to Buy and Hold for Decades

By Neha Chamaria – Aug 30, 2020 at 6:17AM

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These three incredible stocks have multibagger potential if you hold them for decades.

Investing in stocks is one thing, and owning them for decades is another. Studies have shown how some stocks can make investors rich, even millionaires, if investors have had the patience to ignore the day-to-day meanderings of the market and own the stocks for decades. 

Of course, stocks that you can own for such a long time must not only have proved their mettle but also must possess major growth catalysts to keep the momentum going. if you're already wondering where to find such stocks today that could make you so wealthy years down the line, check out the following three champions in their respective industries. 

An under-the-radar stock with incredible prospects

American Water Works (AWK -1.32%) shares have risen nearly sixfold in the past decade, and almost eightfold with reinvested dividends. While past performance doesn't guarantee future returns, the stock has great chances to be a multibagger in coming decades for three key reasons:

  • A regulated business.
  • A well-defined capital expenditure plan for rate base growth.
  • Dividend growth.

American Water provides water and wastewater services to nearly 15 million customers across 45 states in the U.S. and parts of Canada. Its revenue is regulated, which means public utility commissions set the rates the company can charge customers for its services. That eliminates much of its top-line volatility, allowing American Water to generate stable cash flows and pay regular dividends. 

This past April, American Water increased its quarterly dividend by 10%, in line with its dividend policy of aligning "dividend increases with long-term earnings-per-share growth, and to provide for a target payout ratio between 50 to 60 percent of net income." That payout ratio range makes the stock's dividends very safe.

Rising stacks of coins depicting income growth over time.

Image source: Getty Images.

But if you're wondering how a company whose service rates are regulated can grow, here's the thing: A regulated utility is required to regularly upgrade, modernize, and expand its infrastructure to win timely approvals for any proposed rate hikes. American Water has big plans: It plans to pump $20 billion to $22 billion in capital investment over the next decade. In the medium term, the company expects its rate base -- the value of property used to provide services and on which rates are determined -- to grow at a compound annual rate of 7%-8% through 2024.

That rate base growth and capital investment should be good enough to propel American Water's earnings and dividends higher, making it a no-brainer stock to own for decades.

This secular trend could make many millionaires

Mastercard (MA -1.60%) is a fantastic stock to bet on a hugely promising secular trend -- cashless modes of payment (cards, digital wallets, mobile payments) replacing cash all over the world. While e-commerce has been a major trigger for this shift, the coronavirus outbreak could prove to be the biggest impetus yet as customers skip brick-and-mortar shops to increasingly shop online, even forcing many stores to go virtual.

It's a trend that's here to stay, and as one of the world's largest payment processing companies, Mastercard stands to be a major beneficiary.

The key point to understand here is that Mastercard is a payments facilitator and not a lender. In other words, the Mastercard-branded credit and debit cards you and I use are issued by financial institutions and not the company. Mastercard simply facilitates transactions between parties like consumers, banks and financial institutions, and merchants over its payments-processing network. Every time someone uses a Mastercard card to make a purchase, the company earns fees.

It's a sustainable, high-margin business model -- Mastercard's operating margins have ranged well above 50% for several years now. Aside from transaction fees, the fintech company also has earns from ancillary services such as cybersecurity, data analytics, and loyalty reward programs. As of Dec. 31, 2019, Mastercard had 2.6 billion Mastercard- and- Maestro-branded cards issued worldwide, with aggregate purchases made through its cards amounting to a whopping $6.5 trillion during the year.

With an enviable lineup of top global companies as partners, a massive addressable market, and management's focus on technology-driven products, Mastercard is a classic buy-and-hold stock to own. 

Healthcare is where real money is

Johnson & Johnson (JNJ 0.33%), the world's largest healthcare conglomerate with a hugely diversified portfolio, aggressive growth plans, and one of the best dividend track records in the sector is most likely to mint investors a lot of money in the decades to come.

Though better known for its consumer health products (think Neutrogena, Listerine, Band-Aid, Benadryl, Nicorette, and its namesake Johnson's brand), Johnson & Johnson generated half its sales from pharmaceuticals and nearly one-third from medical device sales in 2019. Not one to rest on its laurels, the company just made a massive growth move: Johnson & Johnson is all set to acquire Momenta Pharmaceuticals (MNTA) in a humongous $6.5 billion all-cash deal to take a huge leap in immunology, one of the several pharma areas the company dabbles in.

Johnson & Johnson strives to create value through research and development spending over the years -- nearly 25% of its sales consistently come from products launched in the past five years. And the company's sales and cash flows have grown rapidly all through, supporting growing dividends that have driven shareholder returns higher.

JNJ Total Return Price Chart

JNJ Total Return Price data by YCharts

Johnson & Johnson, in fact, is a Dividend King, or among the few companies to have raised dividends every year for atleast 50 years -- its latest dividend increase of 6.3% in April was its 58th annual increase. The stock currently yields 2.7%.

Johnson & Johnson has an incredible biotech pipeline among other things that should see the company grow leaps and bounds in the years to come. It's also the latest to join the race to develop a COVID-19 vaccine. With such an impressive history over its 130 years of existence and tremendous growth prospects, this stock's one for keeps.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Mastercard. The Motley Fool recommends Johnson & Johnson and Momenta Pharmaceuticals. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$166.72 (0.33%) $0.54
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$293.58 (-1.60%) $-4.78
Momenta Pharmaceuticals, Inc. Stock Quote
Momenta Pharmaceuticals, Inc.
American Water Works Company, Inc. Stock Quote
American Water Works Company, Inc.
$140.91 (-1.32%) $-1.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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