Warren Buffett is known for having said, "[O]ur favorite holding period is forever." That's not surprising, since the best way to get phenomenal results from many great stocks is to hold them for decades. Shares of Apple, for example, have grown about 1,200% (with dividends reinvested) over the past decade, but have returned more than 53,000% over the past 20 years.
Few stocks will end up appreciating quite as much Apple, but even more ordinary businesses can deliver impressive returns over long periods. Here are three companies that have staying power and promising futures.
1. American Water Works
American Water Works (AWK -0.57%) is in a business that's not going anywhere: water. No matter how technology may change our lives, we'll still need clean water. The fact that American Water's history goes all the way back to 1886 is evidence of how much staying power it has. It's now, in its own words, "the largest and most geographically diverse U.S. publicly traded water and wastewater utility company," providing "regulated and market-based drinking water, wastewater and other related services to 15 million people in 46 states."
As of the end of last year, the company's regulated business boasted more than 53,000 miles of pipe, 609 water treatment plants, 150 wastewater facilities, 1,100 wells, and 75 dams.
It's an appealing investment, too. For one thing, American Water pays a dividend. It recently yielded 1.3% and has been increased at an average annual rate of 10% over the past five years. The stock itself has been growing at good clip, too, averaging more than 21% growth annually over the past decade. In its last quarter, earnings per share increased by 17.5% over year-earlier levels, aided in part by climate change, which kept parts of the U.S. dry. The company is investing hundreds of millions of dollars in its infrastructure, and it's acquiring other businesses, boosting the number of people served.
McDonald's (MCD -0.53%) needs no introduction, and it's another company that has been around for a long time -- more than 65 years, in fact. It's grown into...dare I say a whopper of a business? It's the world's biggest food service retailer, closing in on 40,000 locations in 100-some countries.
The vast majority -- 93% -- of McDonald's restaurants are franchises, with the company owning and operating relatively few of its own. This makes for an appealing business model, as it means the company doesn't have to buy, rent, staff, and maintain tens of thousands of locations. Instead, it can collect payments from franchisers -- a leaner, less capital-intensive business model.
One underappreciated aspect of McDonald's is that along with being a fast-food titan, it's also very much a real estate business. It has bought many thousands of locations for its restaurants, and it rents them out to franchisees. McDonald's is also a dividend payer, with its payout recently yielding 2.15%. The dividend has increased by an annual average of about 8% over the past five years. Dividend income is great to have, because healthy and growing companies will tend to keep paying shareholders no matter what the economy is doing. McDonald's has paid (and increased) its dividend for more than 40 years.
Microsoft (MSFT -0.31%) is one more company you should be comfortable aiming to hold for decades. Like American Water Works and McDonald's, it has also been around a long time -- it was founded in 1975 and incorporated in 1981 -- but more than the others, it has had to do a lot of changing to keep up with the times. It began with personal computers and the Windows operating system, and today it has a wide variety of offerings, such as its Microsoft 365 suite of productivity software (Word, Excel, Outlook, etc.), its Azure cloud computing service, its Xbox gaming platform, and the Windows operating system.
The company has grown into one of the largest on Earth. Its market capitalization recently topped $2.2 trillion. Indeed, some see the company eclipsing Apple's $2.5 trillion value to become the most valuable Nasdaq stock.
Microsoft's second-quarter revenue grew 21% year over year, while net income surged 47%, making clear that despite its huge size, it can still grow rather quickly. Its stock can grow quickly, too -- it rose more than 20% in the first half of this year alone. (That's not a growth rate to count on year in and year out, though.)
Microsoft is also a dividend payer, though its yield was recently just 0.74%. That payout has been growing at an annual average of about 9% over the past five years, however, meaning that long-term shareholders are likely to receive greater and greater sums via dividend payouts over the years.
Forever is a long time
American Water Works, McDonald's, and Microsoft are all companies that you may want to buy and hold forever. It's not quite that simple, though. It's never smart to buy stocks and then just forget them because you never plan to sell them. You should still keep up with them regularly to make sure your confidence in their future remains intact. Even Buffett has explained:
Sometimes the comments of shareholders or media imply that we will own certain stocks "forever." It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and we're talking 20/20 vision). But we have made no commitment that [Berkshire Hathaway] will hold any of its marketable securities forever.
So take a closer look at any stocks that interest you as possible long-term investments, and know that long-term investing is indeed a great way to build wealth. Your holding period may very well fall a bit short of forever, though.